Investing in Energy? Berkshire Is a Great Place to Start

Investors in Berkshire Hathaway's (BRK.A -0.30%) (BRK.B -0.26%) broad portfolio of companies gain exposure to several strong industries, including energy. In this Motley Fool Live segment, recorded on Jan. 4, Fool contributors Toby Bordelon and Lou Whiteman take a closer look at Berkshire Hathaway's most compelling holdings. 

Toby Bordelon: Other industrial subsidiaries of Berkshire. Now, you may argue with some of these, whether it 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 truck, 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 that's. [laughs] These are basic things that help reduce pressure and friction in pipelines, to increase your flow. NetJets, this maybe the one you quibble with, a 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 existing distribution, and that 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.

Toby Bordelon: Aircraft for our space aerospace parts. Shaws of foreign 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 this industrial space.

Lou 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, 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.

Toby 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, the portfolio. If you look at the third quarter, railroad utilities and energy. Not even those other business we're talking about, would come in those other businesses aspects. Just the railroad and utility then energy produced almost 50 percent of their operating income. I think it's better to look at the nine months. You will go back 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 at Berkshire's bottom-line. This is increasingly how they make their money as this type of company. Again, to the reiterate, I think this is the 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 going to get exposure to energy, to industrials with the railroad and the private aircrafts 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 need the equity portfolio. Apple, [laughs] I already mentioned this, means a lot of where 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 of its diversification. It gets you into that energy industrial space in a big way. It got a solid proven leadership team.

You can go 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