In this segment from Motley Fool Live, recorded on Jan. 4, Fool contributors Toby Bordelon and Lou Whiteman discuss several of the industrial businesses that Berkshire Hathaway (BRK.A 0.93%) (BRK.B 0.94%) operates and the benefit of built-in diversification for investors.
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Toby Bordelon: Other industrial subsidiaries of Berkshire. Now, you may argue with some of these, whether they really fit the industrial bucket. I think many of them do. But just to give you a flavor of what operating companies they own.
Clayton Homes manufacturer of prefabricated homes, home-builder there. Duracell, big battery manufacturer. Forest River, they make commercial trucks, shuttle buses, trailers, pontoon boats, also RVs and what most people know them for, so a big vehicle manufacturer there.
IMC companies, they are a metalworking supplier. They also do engineering and manufacturing consulting. Johns Manville, what are they? Manufacturer of insulation, roofing, fibers, and non-woven materials, industrial supply company, basically.
LSPI is a manufacturer of pipeline drag, reducing reagents. If that doesn't scream industrial, I don't know what does. [laughs] These are basic things that help reduce pressure and friction in pipelines, to increase your flow.
NetJets, this may be the one you quibble with, the fractional ownership of private aircraft, and here we say airlines or industrial, so there you go. McLean company, they are a supply chain company with logistics distribution, that sort of stuff. Precision Castparts, you know this company, I'm sure, Lou, you know what they do.
Lou Whiteman: This was one of my favorite companies before they bought it.
Bordelon: Aircraft parts, basically aerospace parts. Shaw is a flooring manufacturer. XTRA, they lease semi-trailers. They do semi-trailer leasing. TTI is a distributor of electrical components. A really broad diverse portfolio here of companies that really are operating in this industrial space.
Whiteman: The interesting thing there too, is a lot of cyclicality, but also not a lot of lined-up cyclicality. You have companies that are naturally going to be up when others are down, which is the portfolio effect.
Precision Castparts is a great example of that. Terrible couple of years, people saying, why did he buy it? That's a great company and it's going to come back, but it's been a bad few years for anything touching airlines.
At the same time, we had Clayton Homes going through the roof, which is the beauty of this portfolio, there's so much going on. It's all not going to be down at once.
Bordelon: Yeah, that's a good point. Here we have, I just wanted to show you the operating income for the most recent quarter, the third quarter, just to get a sense of what this means to the portfolio.
If you look at the third quarter, railroad utilities and energy. Not even those other businesses we're talking about would come in those other businesses' aspects. So, just the railroad utility and energy produced almost 50% of their operating income.
I think it's better to look at the nine months, you look over there to nine months. You still see it over 1/3 of the operating income. Adjust for the railroad and utilities, you add in these other businesses we just talked about in the last slide, it's even more than that.
That shows you how important the industrial and energy businesses are to Berkshire's bottom line. This is increasingly how they make their money as this type of company.
Again, to reiterate, I think this is a great company. If you're just starting out and looking at energy and industrial, you say where do I start? I think this is a great place to get started. You're going to get exposure to energy, to industrials with the railroad and the private aircraft in the business, and all the other ones we've talked about.
You're going to get other stuff too. You're going to get the financial/insurance. You're going to get a bunch of other operating businesses. You're going to get the equity portfolio, Apple (AAPL -0.93%) [laughs], as we mentioned what that is right now.
You are not just getting traditional utility. You're getting this pioneer and renewable development. I think which is cool. I like it because it's got instant diversification. It gets you into that energy industrial space in a big way.
They've got a solid, proven leadership team. You can build from there. You can start with this, you can get your energy industrial in one fell swoop, and you can learn about it. You can study Berkshire energy, you can study the industrial companies. You can find out, where do I want to go from here? What other things I want to add to my portfolio? But I think it's a great way to get started in the space.
