Every investor dreams about owning the next Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B), as the empire that Warren Buffet built has single-handedly turned many of its long-term shareholders into multimillionaires. Berkshire's unique operating structure combined with Buffett's acumen for buying high-quality businesses allowed it to reinvest its profits at high rates for decades, turning it into the $328 billion behemoth it is today.
With that in mind, we asked five Motley Fool contributors to share a company that they think holds Berkshire-like long-term potential. Read below to find out which stocks they like and see if you agree.
Dan Caplinger: Chipotle Mexican Grill (NYSE:CMG) certainly doesn't have any ties to the insurance industry, and it's unlikely to become a mini-conglomerate in its own right. Yet the fast-casual Mexican-cuisine chain has revolutionized the restaurant industry, and with a modest market capitalization of just more than $20 billion, Chipotle has the capacity to maintain an aggressive growth trajectory that could give it long-term returns that eventually challenge what Warren Buffett has achieved as the head of Berkshire Hathaway.
Those who focus on the company's earnings report in late October might argue that Chipotle's best returns are now behind it, with slowing growth that will eventually prove to be the stock's undoing. Yet, with new restaurant concepts, growth initiatives to boost the use of technology to increase productivity and sales at existing restaurant locations, and an ongoing effort to expand its store network geographically, Chipotle has the potential to get back on a faster growth track in time.
Moreover, with a core mission that resonates with customers, and a management team to implement it, Chipotle should continue to benefit from the trend among its patrons that the restaurant chain itself helped to spearhead. It'll take a long time to see whether Chipotle has the staying power that Berkshire Hathaway has demonstrated, but so far, at least, the restaurant chain has gotten off to a good start.
Brian Feroldi: One company that has been a massive winner over the years is Intuitive Surgical (NASDAQ:ISRG), the robotic surgery pioneer. Intuitive's da Vinci system has absolutely dominated the robotic surgery space, and the company's razor/razor blade business model has proved successful in providing its investors with market-smashing returns.
However, the company's historical success has now turned it into an $18 billion behemoth, so its sheer size is going to make it hard for the company to put up growth numbers in the future that resemble its past. Plus, it looks like the company may finally see competition soon, as smaller rival TranxEnterix might see its surgical robot clear the FDA approval process in 2016.
I'm not at all worried that Intuitive will lose its dominant position, as surgeons tend to stick with a system once they've gone through the hassle of learning how to use it, and the company's huge installed base of systems will keep the recurring revenue from disposable sales and service contracts flowing for decades to come.
While Intuitive will certainly find it hard to grow anywhere near as quickly now as it did in the recent past, it should still be able to grow at above-market rates for years to come; so while I don't expect the stock to double anytime soon, it should be able to provide its investors with steady, market-thumping returns
Selena Maranjian: One of the companies most often mentioned as a mini Berkshire Hathaway is Markel (NYSE:MKL). It's not too well known, but is well worth knowing. The company, with its market value recently near $12 billion, pays no dividend -- just like Berkshire. And like Berkshire, that's just fine, because its captain, Tom Gayner, is a top-notch capital allocator who aims to enrich his shareholders not via dividends, but by putting the company's excess capital to profitable use. During the past 25 years, Markel stock has grown at an average annual rate of more than 18%, versus 15% for Berkshire, and 7.8% for the S&P 500.
Like Berkshire, Markel is very much an insurance company -- and a consistently profitable one -- focused not on standard life or casualty insurance, but on specialty insurance. Gayner explained in his 2014 letter to shareholders: "Examples of niche insurance markets that we have targeted include wind and earthquake-exposed commercial properties, liability coverage for highly specialized professionals, equine-related risks, workers' compensation insurance for small businesses, classic cars and marine, energy and environmental-related activities."
The company roughly doubled its size recently via its acquisition of reinsurance specialist Alterra. Gayner has also plowed lots of Markel's money into a $4 billion portfolio of stocks, such as CarMax, Walgreen, Disney, and Berkshire itself -- which makes up more than 10% of the company's stock portfolio.
While Berkshire's subsidiaries range from railroads to candy to jet components and underwear, Markel's subsidiaries specialize in businesses such as high-speed baking equipment, homebuilding, retail data research, and concierge health services. Markel even has some advantages over Berkshire. Its much-smaller size, for example, makes it easier for smart acquisitions or good performances to move the needle.
Jordan Wathen: ACE Limited (NYSE:ACE) has a lot of what made Berkshire great; namely, its ability to generate an underwriting profit in a highly competitive insurance industry. In acquiring and adopting the Chubb name when its acquisition closes, its strength will only grow.
For years, Chubb used its profits to repurchase shares and pay bigger dividends to its investors. In the last 10 years, its written premiums have barely budged. ACE Limited, on the other hand, is an experienced and aggressive acquirer that has used its profitability to buy profitable insurance businesses, growing premium growth. Conveniently, ACE and Chubb both write commercial insurance, though to two completely different customers. ACE services large Fortune 1,000-sized companies; Chubb specializes in smaller, often private, middle-market companies.
Combined, Chubb's profitability and ACE Limited's acquisition prowess could make the consolidated company an excellent growth story in insurance for years to come, producing the kind of double-digit compounded returns investors think of when they think of Berkshire Hathaway.
Sean Williams: There isn't a company out there that's remotely close to becoming the next Berkshire Hathaway, but that's not stopped pharmaceutical giant Valeant Pharmaceuticals (NYSE:VRX) from buying more than 100 biotech-based businesses since 2008, according to Fortune.
Valeant's most-recent purchase is privately held Sprout Pharmaceuticals, the developers of Addyi, dubbed the female version of Viagra. However, its two-biggest transactions are its most transformative. These would be its $10.1 billion purchase of Salix Pharmaceuticals in February, which allowed it to gain hold of Xifaxan, an irritable bowel syndrome drug capable of an estimated $2 billion in peak annual sales, and its $8.7 billion purchase of eye care and dermatology specialist Bausch & Lomb in 2013. Ophthalmology has been an exceptionally fast-growing indication considering our rapidly aging population.
Of course, Valeant's not done, either. Pershing Square's Bill Ackman anticipates that Valeant has the capacity to deploy $7 billion to $20 billion toward acquisitions each year. All of these acquisitions are expected to more than double Valeant's full-year EPS, to $20.54 by 2018.
Investors would still be wise to monitor whether or not Valeant is successfully integrating these new businesses -- which really should be second nature now considering how active it is on the M&A front -- to ensure that integration expenses aren't markedly higher than expected. Also, investors should keep an eye on Congress' ongoing investigation into Valeant's recent price hikes on certain cardiovascular therapies. Drug developers are known for their exceptional pricing power, but recent backlash against that pricing power has put Valeant and other drugmakers in the spotlight. As long as Valeant can overcome its recent bad press -- which I believe it can -- this could be a high-growth, long-term buy worth exploring.
Brian Feroldi owns shares of Chipotle Mexican Grill, Intuitive Surgical, and Walt Disney. Dan Caplinger owns shares of Berkshire Hathaway and Walt Disney. Jordan Wathen has no position in any stocks mentioned. Sean Williams has no position in any stocks mentioned. Selena Maranjian owns shares of Berkshire Hathaway, Chipotle Mexican Grill, Intuitive Surgical, Markel, and Walt Disney. The Motley Fool owns shares of and recommends Berkshire Hathaway, CarMax, Chipotle Mexican Grill, Intuitive Surgical, Markel, Valeant Pharmaceuticals, and Walt Disney. 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.
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