By Nico Gayle, Guest Editor
Although Warren Buffett just added to his portfolio with his Lubrizol purchase, he is unlikely to stop there. In addition to the 13 elephants we wrote about last week, here are a few companies that could be his next buy:
Expeditors International (NASDAQ:EXPD): Expeditors provides global logistics services in the U.S. and internationally by offering a network supporting the movement and positioning of goods. Its services include the forwarding and consolidation of air and ocean freight, distribution management, vendor consolidating, cargo insurance, purchase order management, and customized logistics information. Customers include retailers, distributors of consumer electronics, department store chains, clothing and shoe wholesalers, manufacturers, and catalog stores.
EXPD is the market leader in its industry. EXPD received $5.97B in revenue in the last 12 months, with an operating margin of 9.17%. It has a ROE of 20.90%, which is near the top of the industry, and trades at a P/E of 29.91. Like Fastenal (NASDAQ:FAST), Expeditors carries zero debt at the moment. EXPD has a $10.09B market cap, and pays a $0.20 (.84%) dividend.
UTI Worldwide (NASDAQ:UTIW): Operating through subsidiaries, UTIW is a supply chain services and solutions company, similar to EXPD.
However, UTIW is much smaller than EXPD, with a market cap of only $1.92B. Analysts say the company is focused on improving its efficiency and profitability through its processes rather than acquisitions. The stock trades at a 33.59 P/E multiple. The company had EBITDA of $176.47M in the last 12 months at a 2.65% operating margin.
MSC Industrial (NYSE:MSM): MSC Industrial is a direct marketer and distributor of metalwork and maintenance, repair and operations products. With 5 fulfillment centers and 96 branch offices, the firm has customers in all 50 states.
MSM has very good profitability, with a 15.05% operating margin that ranks in the top 20% in the industry. Its ROE of 19.24% is also strong, as well as its low debt/equity ratio of .02. MSM pays a .88 (1.40%) dividend and has a market cap just above $4B.
Fastenal (FAST): Fastenal sells construction and industrial supplies in both wholesale and retail forms. Its products are separated into two categories: threaded fasteners and miscellaneous supplies. The company has 2,490 stores in the U.S., Mexico, Singapore, China, The Netherlands, United Kingdom, Hungary and Malaysia.
While the firm trades at a P/E of 34.1, it has a strong EBITDA margin of 20.73%, ROE of 21.46%, and no long-term debt. With a market cap of just over $9 billion, it also pays a $0.50 (1.63%) dividend. We think this is a solid yield idea for a low risk retirement portfolio.
W.W. Grainger (NYSE:GWW): GWW provides facilities with maintenance products, along with related services and information, primarily in the U.S, Canada, Japan, and Mexico. Its daily sales grew 11% in February, continuing its strong recent performance. With a market cap of $9.41B, GWW had EBITDA of $990M in the last year, at an EBITDA margin of 14.06%. Its ROE was 22.86% over that span, and the stock pays out a dividend of 2.16 (1.60%). It has a current ratio of 2.58.
Paychex (NASDAQ:PAYX): Paychex provides payroll, human resources, and benefits outsourcing solutions. Its clients are small and medium-sized businesses in the U.S. and Germany. The company was recently named to Training Magazine’s Top 125 list of outstanding international training organizations for the tenth straight year, ranking 26th. PAYX has a market cap of $11.93B, and trades at a 24.26 P/E ratio. Its operating margin of 36.7% and ROE of 34.72% are both in the top 10% of the business services industry, and the firm has no long-term debt. Finally, the stock pays a solid .31 (3.70%) dividend.
Manitowoc (NYSE:MTW): Manufactures and sells cranes and related products, as well as commercial food service equipment. The firm provides equipment in developing countries across Asia, the Middle East, and Latin America, in addition to the U.S.
After announcing a big jump in crane sales this past quarter, the stock has shot up on hopes that the economy has indeed started its recovery. The stock is up 44% in 2011. However, the company has a -12.08% ROE in the past year, and a debt/equity ratio of 4.14.
Crane (NYSE:CR): Crane is a diversified manufacturer of engineered industrial products, operating in five segments: Aerospace and Electronics, Engineered Materials, Merchandising Systems, Fluid Handling and Controls.
The company has a well-established management team, an operating margin of 10.60%, and ROE of 16.35%. CR has a debt/equity of .41, and the stock trades at an 18.31 P/E ratio. It also yields a dividend of 2.00%.
Cooper Industries (CBE): Cooper Industries manufactures and sells electrical products and tools worldwide, with the U.S. as their primary market. The company recently announced a 3-7% hike in all of its divisions’ prices to offset increased commodity prices. Cooper has a $10.03B market cap, and pays a 1.16 (1.90%) dividend. Over the last 5 years, the dividend has grown an average of 8.5% annually. CBE is trading at a trailing P/E of 23.10, and has a ROE of 14.39% over the last year. The firm has a current ratio of 2.43 and an operating margin of 11.44% over the last 12 months, both of which are well above the industry average.
Albermarle Corp. (NYSE:ALB): Albermarle develops, produces, and sells engineered specialty chemicals for consumer electronics, petroleum refining, utilities, packaging, construction, automotive/transportation, pharmaceuticals, crop protection, food-safety and custom chemistry services, serving around 3,000 customers in over 100 countries. It may be unlikely that Buffett chooses another chemical company after the Lubrizol purchase, but ALB may still be attractive to him or someone else for a takeover.
ALB has a market cap of $5.14B and trades at a P/E ratio of 16.07, below the industry average. The company has a top-notch operating margin, at 17.56%, and ROE at 24.72%. Debt is relatively low, with a D/E ratio of .61, and a current ratio of 3.70. Furthermore, earnings nearly doubled in 2010, and analysts project further growth in 2011. ALB’s dividend yields 1.20%.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.