As you may have heard, Warren Buffett says he could make 50% annual returns if he were investing only $1 million. But because his Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) conglomerate is sitting on a cash pile of more than $50 billion, his investing options are severely limited. For the amount of cash he has to invest in order to move the Berkshire needle, he can only target large-cap companies -- elephants, in investing parlance.
Which big businesses might be on Buffett's radar? At the most recent Berkshire Hathaway annual meeting in Omaha, Motley Fool analyst Matt Koppenheffer and I put that question to Andy Kilpatrick, one of the world's top Buffett experts.
Kilpatrick, the author of Of Permanent Value: The Story of Warren Buffett, has spent a lot of time thinking about what the Oracle of Omaha has up his sleeve. He thinks it's almost certain Buffett will be able to find a compelling buy during the next few years. We know Buffett maintains a long-term focus and a preference for top-notch management and will stay in his circle of competence. He'll also look for a good price, and that might come at a time of discord for the targeted company.
Not only are there new companies to consider, Kilpatrick says, but Buffett could also add a lot of value by buying more of what he already owns.
Andy Kilpatrick: I think the answer is "absolute yes." He's got all the cash in the world, he can always sell bonds, he could sell some stocks. He could buy something that he already owns, and that would give him like Burlington Northern and GEICO ... buy the other part of the company, which gives you an automatic boost. I think he's looking for a major elephant. And if he waits two more years to do it, it may be a herd of elephants. I think that's his job -- to find an elephant. To me, the people working for him and looking ... there are the Ted Weschlers and Todd Combs that can find the mid-level stuff, but his job is to find the elephants.
Matt Koppenheffer: So what are you handicapping as the next one? This is a favorite parlor game at the Fool.
Andy Kilpatrick: I think in what he has. It could be an insurance add-on, it could be a major business -- and I'm just making up names. A FedEx, Chubb has been talked about. I think in the $20 billion range. I don't think he's looking for something new and different that he's never heard of. I think it's something he's followed all his life. I just made that name up -- I don't know. Just some large company. I'd say it's got to have a brand name, it's got to have excellent management for sure, it's going to be a great price, it's going to be bought at a difficult time, and he's going to know the management, and I think it will be exactly the same as it's always been, and it will be bigger.
Rex Moore owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway, Ford, and Tesla Motors. The Motley Fool owns shares of Berkshire Hathaway, Ford, and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.