Warren Buffett is fresh off an active year full of deal-making and stock purchases. And with a cash war chest still topping $100 billion, it wouldn’t be surprising to see Berkshire Hathaway make another sizable purchase at some point this year. Last year marked a particularly busy one for the 92-year-old investor, who went on a buying spree in finance, energy and technology as stocks sold off. Berkshire agreed to buy insurance company Alleghany for $11.6 billion, Buffett’s biggest deal since 2016. The Omaha-based conglomerate also used billions to buy stock in Chevron , Occidental Petroleum and Taiwan Semiconductor . The 2022 stage seemed set for Buffett, who has throughout his storied career waited for a shakeout in valuations before swooping. After all, the S & P 500 suffered its steepest annual decline since 2008 last year amid surging interest, making it an ideal time for the legendary value investor to hunt for bargains. Buffett favors companies with historically low stock prices when compared with earnings, and rock solid cash flows. Until 2017, Buffett had always revealed his acquisition criteria every year in his annual letters to Berkshire shareholders. At the time, he said he typically prefers “large” purchases with pretax profit exceeding $75 million, “consistent earning power” and “good” returns on equity while employing little or no debt. CNBC sought to identify companies that would fit Buffett’s acquisition criteria today, and here’s a list of qualities we looked at: Annual net income greater than $500 million CAGR (Compound Annual Growth Rate) in net income of at least 10% Debt to equity less than 20% We also excluded companies with a mega market cap as Buffett said in 2014 he would like to make an acquisition in the $5-20 billion range. The largest deal Berkshire did in recent years was the $37 billion purchase of Precision Castparts in 2016. Buffett later admitted that the deal was too expensive and resulted in an “ugly $11 billion write-down.” The list from CNBC screen found companies in sectors ranging from health care to technology, from consumer goods to industrials. Monster Beverage checks all the boxes in Buffett’s acquisition criteria. The longtime investor tends to prefer companies with a well-established brand name that’s long lasting, such as consumer names Berkshire owns outright in Fruit of the Loom and Dairy Queen, as well as a sizeable stake in Coca-Cola . Monster seems right up his alley. Another interesting name that made the cut was Old Dominion Freight Line. Berkshire is no stranger to transportation. Berkshire owns BNSF Railway, the old Burlington Northern Santa Fe that’s one of the largest freight railroads in North America. But Buffett’s often traded in and out of the sector. Early in the pandemic, Berkshire sold $4 billion worth of four airline stocks , and back in the 1990s it took a big loss on USAir preferred. In 2017, Berkshire bought 39% of Pilot Flying J, the nation’s biggest operator of truck stops and travel centers, and the conglomerate is set to increase its ownership in the company. Buffett is known to have a taste for capital intensive businesses like railroads and industrial-products makers. Also on the list were Copart, an online vehicle auction company, Teradyne , an automatic test equipment designer and manufacturer, as well as software name Cadence Design Systems . Berkshire had amassed a cash pile of nearly $109 billion at the end of September, the most recent quarter for which figures are available.
10 stocks that fit Warren Buffett's takeover criteria