Warren Buffet, the world's most successful investor, is always on the hunt for great businesses to add to his vast collection. Earlier this year, he added the specialty metal manufacturer Precision Castparts (NYSE: PCP) to his vast empire in a deal valued at $37.2 billion, and with cash pouring in from his other businesses, its likely he is already looking for more great businesses to buy.
We asked our team of Motley Fool contributors to share a stock they think would make a fine addition to Buffett's portfolio. Read below to see which companies they highlighted.
Andres Cardenal: Warren Buffett loves companies with strong competitive advantages in predictable industries, and the Oracle of Omaha is also well-known for his sweet tooth. Keeping this in mind, it looks like The Hershey Company (NYSE:HSY) could be an appetizing candidate for Warren Buffett's portfolio.
The company owns a unique portfolio of brands in the chocolate business, including household names such as Hershey's, Reese's, Kit Kat, Twizzlers, and Ice Breakers, among several others. Brand presence is a crucial differentiating factor in the industry, and management estimates that Hershey owns a gargantuan market share around 45% in the U.S.
Hershey has proven its ability to produce expanding profit margins over the years. Gross profit margin has increased from 42.8% of sales in 2010 to an estimated 46.3% of revenue in 2015. Similarly, EBIT -- Earnings Before Interests and Taxes -- margin is up from 17.7% in 2010 to nearly 19.6% of revenue.
Being a market leader in a stable category, it's not easy for Hershey to find growth opportunities. However, global markets still represent only 15% of total revenue, and management is betting on international expansion to jump-start growth. In this area, Hershey has identified China as a key growth market, and Hershey has already reached market share levels of nearly 11% in this crucial geography.
While the company's beaten-down stock price is enough of a reason to catch Buffet's eye, there are two other reasons Buffett should consider adding Halliburton to his portfolio. First, it's nearing the finish line on a transformative deal to acquire rival Baker Hughes.
While the deal still faces a number of hurdles, the fact that Halliburton recently agreed to extend the deal's deadline suggests that it firmly believes it will be able to work out an agreement with regulators to win their approval. It's a deal that would be a real boon to Halliburton given the $2 billion in synergies it expects to capture.
It's not all that often we find a great business selling at a great price, but that's what we find at Halliburton. Even better, it has two very big catalysts on the horizon that should fuel strong earnings growth. It's the type of combination that makes Buffett's mouth water, which is why I think Halliburton should be at the top of his buy list in 2016.
Over the last few decades, Johnson & Johnson has grown a healthcare conglomerate. The company currently counts 265 different operating companies in its empire, selling thousands of products in dozens of countries all over the world. The company's huge size and diversity allow it to grow its revenue and profits consistently, regardless of what is happening in the global economy.
Johnson & Johnson also holds a strong competitive position in the majority of markets in which it operates, as its management team claims it currently holds the No. 1 or No. 2 market share position in 17 different categories. That leadership position allows the company to enjoy strong returns on its invested capital, and the company has a demonstrated a history of returning its profits back to shareholders in the form of regular share repurchases and an ever-rising dividend.
While Johnson & Johnson's price-to-earnings ratio of just shy of 20 doesn't exactly scream a bargain right now, I think thats a fair price for a wonderful business, so it wouldn't surprise me to see the Oracle add this investment stalwart to his portfolio this year.
Andres Cardenal has no position in any stocks mentioned. Brian Feroldi has no position in any stocks mentioned. Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Halliburton. The Motley Fool recommends Johnson & Johnson and Precision Castparts. 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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