It is well known that Berkshire Hathaway's (NYSE:BRK.B) recent partnership with 3G Capital to acquire H.J Heinz CO (NYSE:HNZ) did not satisfy Warren Buffett's appetite for acquisition. Mr. Buffett has made it quite clear in several interviews that his "elephant gun" is still locked and loaded, and that he's on the hunt for yet another multi billion dollar deal.
Early in his legendary investing career, Buffett built his reputation mainly as a value investor, using his mentor Benjamin Graham's long term market weighing machine to seek out undervalued companies and waiting for Mr. Market to realize the underlying true value.
In more recent years, as Berkshire Hathaway grew into the massive conglomerate that it is today, Buffett has displayed a willingness to pay full value, and to even offer a significant premium, to acquire what he considers to be great companies, as his 2009 Burlington Northern and recent Heinz deal show.
Following Buffett's maxim that's "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price", I've chosen to highlight four great companies with long histories and strong brands that provide the type of competitive moat that Mr. Buffett seeks.
J.M Smucker Co (NYSE:SJM)
Similar to Heinz, Ohio based J.M. Smucker Co is a manufacturer of household food names such as Folgers, Smuckers, Jif, Hungry Jack, Pillsbury, Crisco, Borden, Carnation, and many other leading brands, which it markets both here in the US and internationally.
The company announced strong Q3 earnings in January, with a 6% increase in revenue, a 32% increase in net income, and a 20% increase in earnings per share over the same period in 2012.
Smuckers appears close to being fully valued, trading at around 20 times earnings, but with their powerhouse lineup of US and international food brands, strong growth and solid balance sheet, J.M. Smucker would appear to be a very good fit for Berkshire, and it's $10 billion market cap could land it squarely in Buffett's crosshairs.
W.W. Grainger (NYSE:GWW)
Founded in 1927, Chicago based W.W. Grainger is a leading distributor of maintenance, repair and operating supplies from over 3,500 leading manufacturers, such as Honeywell (NYSE:HON), General Electric (NYSE:GE) and 3M (NYSE:MMM) to over two million small, medium and large corporations, government agencies, and institutions worldwide.
Grainger reported strong Q4 earnings in January, with revenues increasing by 7%, net income increasing 5%, and earnings per share increasing 6% over the same period the year before.
As with Smucker, Grainger would appear to be close to full value, trading at around 24 times earnings, and it's $15.6 billion market cap place it at the higher end of Berkshire's acquistion price range. However, Grainger's dominant presence in the industrial distribution business, powerful lineup of brands they represent, and solid balance sheet should make Grainger a perfect addition to the Berkshire family. Perhaps a new distribution channel for Berkshire's Iscar machine tool line?
McCormick & Co (NYSE:MKC)
Maryland based McCormick & Co, founded in 1889, is yet another manufacturer of food products with name recognition and product strength that give it a very powerful competitive moat. I mean, can anyone actually name another brand of spice? In addition to their McCormick brand spices, the company also produces other brand names such as Zatarains, Thai Kitchens, and Lawrys (I can't grill a steak without Lawrys Seasoned Salt).
McCormick's Q4 revenues rose 4%, while net income and earning per share both rose 12% over the same period the year before. The company announced a 10% dividend increase in November, 2012, their 27th consecutive annual increase.
Once again, the stock appears to be fully valued, trading at about 24 times earnings. But McCormick's $9.5 billion market cap, solid balance sheet, and strong product lineup could make them the perfect ingredient to add to Mr. Buffett's Berkshire stew.
Tiffany & Co (NYSE:TIF)
My fourth and final Berkshire acquisition candidate, and admittedly the longest shot of the bunch, is Tiffany & Co. Founded in 1837, Tiffany is the oldest of the four companies, and has one of the strongest name brand competitive moats of any American company. New York, NY based Tiffany and Co designs, manufactures and retails fine jewelry, timepieces, fine china, sterling silver, fragrances and stationary and leather goods worldwide.
On Friday, the company announced Q4 2012 worldwide sales increased 4% to $1.2 billion, and net income and earnings per share increased 1% over the same quarter last year. As with the others, Tiffany appears to be close to fully valued, trading at 21 times earnings. Tiffany has a solid balance sheet, and its $8.7 billion dollar market cap make it the perfect sized elephant.
Given Mr. Buffett's affinity for upscale jewelry brands such as Helzberg Diamonds and Borsheims Fine Jewelry, Tiffany could just become the biggest gem in the Berkshire crown jewels.
While I don't pretend to know exactly what Mr. Buffett thinks about any of these companies, I do believe that they are all the kind of great business that he would look for when stalking his next elephant, or at the very least would add to the Berkshire stock portfolio, along with other Buffett favorites Coca Cola (NYSE:KO), Wells Faro (NYSE:WFC) and American Express (NYSE:AXP). All four companies have instant name recognition, powerful brands, strong earnings growth and conservative financials, and offer excellent synergies with existing Berkshire subsidiary companies, and as a long term Berkshire Hathaway shareholder, I would happily welcome all of them into the Berkshire family.
Additional disclosure: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. It is up to investors to make the correct decision after necessary research. Investing includes risks, including loss of principal.