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Business, Finance, Occupation & Industry

Best Investments for the Next 5 Years

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By Daniel Sparks, The Motley Fool

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It’s nearly impossible to project anything five years out. If it were easy, we’d all know what stocks to put in our portfolio. Ironically, however, thinking long-term is a healthy habit for stock market investors. It filters out the noise and helps investors think about the underlying fundamentals that drive businesses over the long haul. In the next few paragraphs, I’ll uncover two stocks that could make some of the best investments over the next half-decade.

Apple
PC sales are declining, and smartphone and tablet sales are booming. If there’s one company that is sure to benefit from this trend over the next five years, it’s Apple. Yes, Apple may have lost market share over the last 12 months to Samsung, but it still captures the majority of worldwide smartphone profits. In fact, a recent study by Canaccord Genuity found that Apple took 72% of worldwide handset profits in the fourth quarter.

Another favorable factor for Apple: It is a cash cow. Even as the company’s margins continue to decline, it’s still adding far more money to its balance sheet than it’s paying out in dividends. In 2012 alone, the company earned $46.3 billion in free cash flow on $164.7 billion in revenue. Free cash flow, of course, is equal to cash provided by operations minus capital expenditures, so this is the cash Apple generated after it took care of its operating expenses and its long-term investments.

Though 2013 may have been tough on the stock so far, analysts, on average, expect earnings to increase at about 19% annually over the next five years.

Berkshire Hathaway
The Oracle of Omaha, Warren Buffett, seems to be on his A game — even at 82 years old. Berkshire Hathaway shares almost tripled the S&P 500‘s 11.8% return over the last 12 months, with a 30.1% gain. Even better, his lieutenants, Todd Combs and Ted Weschler, have both managed to outperform the S&P 500 by double-digit margins. In fact, they did better than Buffett himself, he admitted in the 2012 annual letter to shareholders.

Though it’s too early to tell whether Berkshire’s acquisition of H.J. Heinz will play out nicely, the outcomes of the company’s major acquisitions and purchases over the last five years have in time mostly silenced the naysayers who so eagerly criticized Buffett at the time of the purchases.

A case in point is the company’s largest acquisition ever: Burlington Northern Santa Fe, which it acquired in 2010 and turned out to be a significant success. In 2010, the company earned $2.45 billion; just two years later, the railroad contributed a whopping $3.37 billion to Berkshire’s earnings. Since Berkshire acquired BNSF, the Dow Jones U.S. Railroads Index has more than doubled the returns of the S&P 500, snapping up a return in excess of 80%.

Berkshire isn’t lacking in stock ideas, either. In 2011, Berkshire started picking up shares of IBM like nobody’s business. Now Berkshire owns 6.1% of the company. …read more

Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Warren Buffett's Green Energy Profit

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By Doug Ehrman, The Motley Fool

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In a recent letter to shareholders, Warren Buffett wrote: “We will keep our foot to the floor and will almost certainly set still another record for capital expenditures in 2013. Opportunities abound in America.” The legendary investor was largely referring to Berkshire Hathaway‘s tradition of using profits to drive growth through the acquisition of additional assets or profitable businesses. Over the past few weeks, several environmentally friendly developments have had an impact on two of Buffett’s most critical businesses: Burlington Northern Santa Fe and MidAmerican Energy Holdings.

The railroad announced a pilot program that will investigate the use of natural-gas-powered locomotives, while energy efficiency improvements are expected to outpace organic rises in demand. BNSF is the second-largest consumer of diesel fuel in the U.S., second only to the Navy, meaning that the potential cost savings are significant. On the electricity side, weakening demand means that the company can target its own efficiency for growth and respond to actual customer needs.

The potential of LNG
To stress the importance of shifting locomotives from diesel to liquefied natural gas, or LNG: In 2012 the average price for a gallon of fuel was $3.97 relative to less than $0.50 for a comparable quantity of LNG. The cost of converting a single engine to use LNG is estimated at $1 million dollar, although the company hopes to achieve some economies of scale when it looks to convert the bulk of its 6900 locomotives. The upfront cost of such an undertaking is significant, but the ultimate savings potential is dramatic.

Companies like Clean Energy are already working hard to make LNG available across the U.S. for a number of consumer and industrial uses. In a recent press release, the company estimated that LNG reduces greenhouse gas emission between 23% and 30%, depending on vehicle type; the U.S. Department of Energy, or DOE, estimates that as much as 98% of LNG consumption is sourced in North America. The overall stability offered by LNG is significant.

The electrical shakeup
PacifiCorp’s Rocky Mountain Power projects a 0.6% decline in energy demand this year. Power companies including American Electric Power and Xcel Energy have seen similar pressure on sales as a result of efficiency improvements to everything from appliances to light bulbs. Xcel, which carries a dividend yield of 3.6%, recently touched a new 52-week high; despite the sales pressure, the stock has been strong. American Electric is behaving similarly and showing few signs of slowing. The DOE expects only a 0.4% increase in electricity usage for the year, also driven by improving efficiency. These types of improvements are behind the expectation for MidAmerican that capital spending will end up being $2.4 billion less by 2021 than had been expected.

The combined impact
Last year, these two businesses accounted for $9.8 billion of capital spending by Berkshire, making them the two largest uses of capital in Buffett’s empire. Where PacifiCorp is expected to slow …read more

Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Warren Buffett Is Not the Only Winner Here

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By Joel South and Taylor Muckerman, The Motley Fool

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U.S. Gulf Coast refiners, in addition to Canadian oil sands producers, stand to benefit if the southern portion of TransCanada‘s Keystone XL pipeline gains approval. While the debate continues, railway companies continue to profit.

In 2009 Berkshire Hathaway  purchased the remaining outstanding shares of Burlington Northern Sante Fe for $26 billion (total purchase price of $44 billion), adding one of the United States‘ largest railroad companies to its portfolio. BNSF continues to take advantage of crude pipeline bottlenecks by moving oil from wellheads to refineries, and this trend will continue with the company expecting a 40% boost in crude shipments in 2013. 

The growth has been phenomenal with crude-by-rail shipments soaring over 250% in 2012, moving close to 170 million barrels of oil. Berkshire’s BNSF is not the only company in on the action. Check out the video below for other players profiting from the sharp rise in rail transportation.  

If you’re on the lookout for some currently intriguing energy plays, check out The Motley Fool’s “3 Stocks for $100 Oil.” For FREE access to this special report, simply click here now.

The article Warren Buffett Is Not the Only Winner Here originally appeared on Fool.com.


Joel South has no position in any stocks mentioned. Taylor Muckerman has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. 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.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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Business, Finance, Occupation & Industry

This Has Been a Huge Win for Buffett

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By Steve Symington, The Motley Fool

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Since Warren Buffett released his annual letter to Berkshire Hathaway shareholders earlier this month, I’ve spent some time dissecting the world-famous CEO‘s unsurprisingly eloquent words of wisdom.

First, I explored the value of Buffett’s relatively hidden series of bolt-on acquisitions. After all, while it may seem crazy that any company could quietly spend $2.3 billion to absorb 26 distinct, profitable businesses into its existing operations in a single year, Berkshire managed to do just that in 2012.

Next, I noted Buffett’s propensity for outperforming the broader market over the long haul, thanks (in Buffett’s words) not just to Berkshire’s “outstanding businesses, a cadre of terrific operating managers, and a shareholder-oriented culture,” but also largely to the company’s incredible ability to effectively function as a defensive stock.

Let’s talk about the big boys
Now, we’re going to take a look at an excerpt from Buffett’s letter in which he highlights the strengths of some of Berkshire’s larger “outstanding businesses”:

Last year I told you that BNSF, Iscar, Lubrizol, Marmon Group and MidAmerican Energy — our five most profitable non-insurance companies — were likely to earn more than $10 billion pre-tax in 2012. They delivered. Despite tepid U.S. growth and weakening economies throughout much of the world, our “powerhouse five” had aggregate earnings of $10.1 billion, about $600 million more than in 2011. Of this group, only MidAmerican, then earning $393 million pre-tax, was owned by Berkshire eight years ago.

Buffett goes on to note the $9.7 billion gain in annual earnings delivered to Berkshire by the five companies was “accompanied by only minor dilution,” thanks to the fact that three of the five businesses were acquired on an all-cash basis. The fifth, of course, was Burlington Northern, of which 70% was paid for in cash with the remainder covered by newly issued Berkshire shares, which increased the amount outstanding by 6.1%. 

Sure enough, here’s yet another example that Buffett knews what the heck he was doing when he acquired five huge, solidly profitable companies to the benefit of Berkshire shareholders with little dilution. Of course, that’s not to mention Buffett has also been actively working to reverse at least some of that dilution, most notably through the company’s recent substantial share buybacks.

Even still, let’s put things in perspective by digging a little deeper to see just how effective these acquisitions have been. In addition to owning 89.8% of MidAmerican, here’s the skinny on Buffett’s remaining aforementioned purchases, circa the end of 2011:

  • May, 2006: Purchased an 80% stake in Iscar for $4 billion in cash.
  • December 2007: Acquired 64% of Marmon Holdings for $4.8 billion in cash.
  • November, 2009: Acquired the remaining stake of BNSF for $26.3 billion in cash and stock.
  • March, 2011: Acquired Lubrizol for $9 billion in cash, at the same time assuming $700 million of its debt.
  • In “early” 2011: Acquired an additional 16% of Marmon for approximately $1.5 billion, bring Berkshire’s stake to 80%.

When we consider the fact …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

My Top 2 Stocks: Berkshire Hathaway and Waste Management

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By Robert Eberhard, The Motley Fool

WFC Chart

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I haven’t been in the investing “game” for that long, but my two largest holdings are among the first shares that I purchased when I started getting serious about investing. One is a behemoth with revenue streams among multiple industries, while the other leads the way in its very important industry. It is easy to see why they’re leading the way in my modest portfolio.

Barring any major surprises, Berkshire Hathaway and Waste Management should maintain the top two spots in my portfolio for the near future and are on my short list for receiving more of my investing funds in the next couple of months. Though the reasons I chose the companies were different, I have been pleased with my decision thus far and hope for continued great performance from both companies.

Why Berkshire Hathaway?
When I became serious about investing early last year, I was looking for a strong foundation to start out my small portfolio on the right foot. I was looking for a company that had a long track record of market-beating performance, but also one that I thought would continue to do so for the foreseeable future. As a fan of value investing, particularly Benjamin Graham, I figured a great place to start would be with the company run by Warren Buffett, perhaps Graham’s most famous student and one of the world’s best investors.

Berkshire Hathaway is a unique company, and investors in it get rewarded in a multitude of ways. One way is to reap the benefits of its multitude of wholly owned subsidiaries across a variety of industries. Berkshire is perhaps best known for its insurance operations, led by GEICO, but the non-insurance companies it owns also add a lot of money to the Berkshire coffers. Last year, Berkshire’s five most profitable non-insurance companies — including the BNSF railroad and Mid-American Energy — earned more than $10 billion for Berkshire and its shareholders last year. Quite an impressive number.

Investing in Berkshire Hathaway also allows you to share in the performance of the company’s stock portfolio, which is full of stock picks from not only Warren Buffett and Charlie Munger, but also Todd Combs and Ted Weschler, two men Buffett picked to manage an ever-growing portion of Berkshire’s investment funds. Berkshire’s four largest holdings all saw gains during the past year, helping to boost the performance of Berkshire as a whole:

WFC data by YCharts.

Berkshire Hathaway is a company that I’m comfortable owning for a very long time and one that I don’t really worry about. Despite its recent run to new heights, I’ll be adding more to my holding over the next few months to truly benefit from one of the greatest companies out there.

Why Waste Management?
I added Waste Management to my portfolio when I was looking for a strong and sustainable …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Warren Buffett Loves Energy Investments. Should You?

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By Aimee Duffy, The Motley Fool

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Warren Buffett made headlines last month when he announced that his company, Berkshire Hathaway , was buying Heinz. Ketchup is delicious, and a company that makes it is pretty easy for the average American to understand; we see ketchup, we get ketchup.

Some of Buffett’s other investments can be a little bit more complicated — particularly when it comes to the energy industry — but that doesn’t mean they should be off the table. In fact, Buffett has shown tremendous foresight in his energy-related deals over the past few years, and investors hip to his thinking stand to reap profits of their own.

Buffett and solar
At the beginning of this year, Berkshire Hathaway subsidiary MidAmerican Energy announced that it was buying a 579 megawatt solar plant from SunPower for about $2.5 billion. The new plant will make a nice addition to MidAmerican’s two other solar plants that First Solar is building for the company in California and Arizona. These purchases will add to the subsidiary’s growing portfolio of renewables, which also includes wind, geothermal, and hydro.

The future of renewable energy looks bright, and solar is one of the many ways investors can take advantage of that trend. After all, the U.S. is slated to generate 10 GW of power from solar energy by the end of this year, so there must be something to that. But Buffett isn’t limiting his investments to solar power; he is investing in all facets of the American energy story, including oil and gas.

Buffett and oil
In 2009, Berkshire Hathaway purchased Burlington Northern Santa Fe. Buffett said he was making an “all-in wager on the economic future of the United States” at the time. That bet has paid off in spades, as only a few years later oil production in the Midwest has kept unemployment down and revitalized railroads. How? Production of the black gold has grown beyond the capacity of regional pipelines, forcing producers to use trains to get it to market — Warren Buffett‘s trains, to be precise.

The Energy Information Administration has helped put this trend in context, pointing out that oil (and petroleum products) is the fastest-growing commodity-by-rail shipping movement right now:

Source: EIA. 

And of course, Buffett’s railroad just happens to be the largest holder and operator of rail lines in North Dakota, the origin of all this oil. It’s estimated that 52% of oil produced in the Bakken Shale is transported out of the play via rail right now. BNSF is doing its part and expects to cart out 700,000 barrels each day by the end of this year.

Buffett and gas
But Buffett’s energy connection doesn’t end there. BNSF recently announced that the railroad will begin experimenting with natural gas as a transportation fuel this year. Instead of running on costly, polluting diesel, a select number of BNSF locomotives will run on cheaper, cleaner natural gas. BNSF is one of …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Berkshire Hathaway-Owned Rail Operator to Test LNG

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By Eric Volkman, The Motley Fool

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BNSF, a railway operator subsidiary of Berkshire Hathaway , will launch a liquefied natural gas test program in its locomotives. The company will run the program in a small number of its engines later this year in order to ascertain the viability of LNG as fuel.

BNSF has been collaborating with locomotive makers General Electric and Caterprillar subsidiary EMD to develop the technology that will be utilized in the program.

The railway operator has used the fuel in its locomotives before. As Burlington Northern, it operated natural gas engines in the 1980s and 1990s. Later, successor firm BNSF tested LNG switch locomotives in California.

The article Berkshire Hathaway-Owned Rail Operator to Test LNG originally appeared on Fool.com.

Fool contributor Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Berkshire Hathaway. It also owns shares of General Electric. 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.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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