Take lessons from the Oracle of Omaha.
When it comes to investment success, few can match Warren Buffett’s track record. His 10 biggest deals have occurred over the past 16 years, and it is instructive to see what he purchased and when because it may provide clues about sectors that are undervalued and where he may go shopping next. The list, which includes all purchases in order of deal value, is diversified — a good case study about the importance of a diversified portfolio. Here are Buffett’s biggest deals:
10. MidAmerican Energy Holdings Co.
Sector: Energy
Value: $2.14 billion
On Oct. 25, 1999, Berkshire Hathaway purchased a 75 percent controlling stake in MidAmerican Energy Holdings Co., which has since been renamed Berkshire Hathaway Energy. The deal was Buffett’s first in the energy sector and was valued at $2.14 billion, or $8.39 billion including debt. Today, Berkshire Hathaway Energy sports assets of $83.36 billion and liabilities of $61.62 billion, for a net value of $21.74 billion. That’s a 160 percent return on the investment, although some of these increases are the result of other energy purchases.
9. AltaLink Holdings L.P.
Sector: Energy
Value: $3.2 billion
Buffett really fell in love with energy after that first purchase in 1999 and kept adding to his energy holdings over the years. On May 1, 2014, Berkshire scooped up Alberta electricity transmission company AltaLink Holdings, a subsidiary of SNL-Lavalin (a Canadian engineering firm). AltaLink owned more than half the transmission grid in Alberta, serving 85 percent of its population. Buffett purchased the whole enchilada for $3.2 billion, or $5.46 billion including debt, and folded it into Berkshire Hathaway Energy.
8. PacifiCorp
Sector: Energy
Value: $5.1 billion
On May 24, 2005, Buffett bought PacifiCorp for $5.1 billion in cash. Including debt, the deal was valued at $9.4 billion. The purchase gave him the ability to generate power to 1.6 million customers across six Western states. As a regulated utility, PacifiCorp provided only “reasonable” returns, but that was attractive for Buffett’s Berkshire Hathaway (ticker: BRK.A, BRK.B).
7. NV Energy Inc.
Sector: Energy
Value: $5.65 billion
On May 29, 2013, Berkshire purchased NV Energy Inc. for $5.65 billion, or $10.42 billion including debt. This was touted as a Buffett play in renewables, but in truth, it was more of a play on California’s need to import power. The state needs to import 25 percent of its power, and Nevada is right next door. NV Energy was also investing in alternative energy, with the possibility that California’s restrictive laws might require non-carbon-based energy consumption to increase over the next few decades.
6. Lubrizol Corp.
Sector: Industrials
Value: $9.21 billion
On March 14, 2011, Buffett pulled out his elephant gun and took down Lubrizol Corp., a chemicals company specializing in lubricants for industry and household products. It is the kind of deal Buffett has a tendency to make — grabbing a global leader that has consistent use and reliable earnings. Buffett paid $9.21 billion and also assumed $700 million in debt for a total deal value of $9.91 billion. The 2014 revenues for Lubrizol were $6.9 billion, so today’s stake is worth $11.7 billion, a 28 percent increase.
5. IBM Corp.
Sector: Technology
Value: $9.21 billion
In one of the biggest deals in which he did not take over a company, Buffett purchased a 5.43 percent equity stake in International Business Machines (IBM) for $10.7 billion on Nov. 14, 2011. The stock closed that day at $187.35, or $172.48 when adjusted for dividends. Now it trades for less than $150. Many questioned the wisdom of this purchase, but Buffett appears to like the fact that the company aggressively buys back shares, and he sees it as an efficient use of capital.
4. General Re Corp.
Sector: Financials
Value: $16.15 billion
Buffett loves insurance, and that’s why he bought 100 percent of General Re Corp. for $16.15 billion on June 19, 1998. However, in a highly unusual move for Berkshire, he paid for the purchase using stock, swapping 18 percent of his own company to get 100 percent of General Re. At the time, people saw it as just another insurance play, but it was really a hedge against the stock market. Berkshire Hathaway fell from $81,000 per share to $44,000 by February 2000.
3. H.J. Heinz
Sector: Consumer goods
Value: $23.58 billion
Buffett stuck to his roots with the $23.58 billion purchase ($27.5 billion including debt) of H.J. Heinz. For many years, his plan always included buying popular consumer products that appealed to the most basic needs of the American consumer. The Feb. 14, 2013, purchase, however, was not driven by Berkshire. Instead, Brazil-based 3G Capital courted the company first and then asked Berkshire to join in. Berkshire not only bought equity, it purchased $8 billion in preferred stock that pays 9 percent per year.
2. Burlington Northern Santa Fe
Sector: Industrials
Value: $26.71 billion
Buffett claimed that buying Burlington Northern Santa Fe Railroad was an expensive deal when he bought the remaining 75.5 percent of the railroad on Nov. 3, 2009, for $26.71 billion (and $35.94 billion including debt). However, it was cheap given the returns it has provided. It accounts for almost 20 percent of Berkshire’s net income and pays distributions of $3 billion per year. Based on Union Pacific Corp.’s (UNP) trailing 12-month price-to-earnings ratio of 15.1, Buffett’s “expensive” deal is now worth about $50 billion.
1. Precision Castparts Corp.
Sector: Industrials
Value: $31.58 billion
All of these deals seem small compared with Buffett’s $31.58 billion ($35.81 billion including debt) deal last month for Precision Castparts Corp. (PCP). Buffett loved Precision’s management, but he also loved the industrial nuts-and-bolts aspect of the company. Components are needed for aircrafts of all stripes, just as parts are needed for other aerospace and industrial markets. Buffett loves the things that are necessary to make other things, and Precision fits that bill.
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Warren Buffett’s 10 Biggest Deals originally appeared on usnews.com
