The Next Berkshire Hathaway
Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Editor's Note: This version has been amended to correctly reflect Leucadia's market capitalization.
I’m a Berkshire Hathaway investor, but I feel that the company has gotten so overwhelmingly large that gains are going to get harder and harder to come by. I really like the way that Berkshire is run, and while it may be impossible to find the next Buffett I think I have found three companies that could end up going down the same path.
Biglari Holdings (NYSE: BH)
I’m going to jump right in here with what may be the most controversial of the stocks in this article, Biglari Holdings. It’s probably going to get a few people riled up because the company’s chairman, Sadar Biglari has been frequently compared to Buffett.
Now that we’ve got that out of the way, let’s take a bigger look at this $500 million company.
Biglari Holdings is the company behind Steak ‘n Shake, a fast food chain that has had locations popping up around the country recently. Biglari is planning on taking the money that his current businesses generate and investing it much like Buffett does, just on a smaller scale.
Want to know what separates this guy from Buffett? It’s his attitude towards acquisitions. Buffett focuses on companies that want to be acquired, and he’ll work with them from there. Biglari goes right in for the fight if it’s needed.
Sales have been growing at Biglari Holdings by around 2.5% per year over the last five years while net income has been on the up by 12.83% per year.
The company’s P/E ratio is 28.8, which is above that of the restaurant industry that makes up a majority of this company.
Return on equity is something that Buffett looks for, so why shouldn’t we? The return on equity at Biglari Holdings is 4.7% annualized over the last five years.
Markel (NYSE: MKL)
This company is another one that has been thrown out there by many notable websites, including Fool.com, as being the next Berkshire Hathaway.
The reasoning behind that judgment is the company’s CIO, Tom Gayner. Gayner is said to have an investment strategy that is similar to Warren Buffett and the rest of the Berkshire Hathaway team.
Markel is a $5 billion company that is trading with a P/E of 19.5. When comparing that to the property and casualty insurance industry, you’ll see that Markel is quite a lot higher than the industry that has a P/E of 13.8.
Looking at other company numbers such as return on equity, we can see that Markel has an average of 5.4% RoE over the last five years.
As of right now, this company is firmly in the insurance business. If Gayner can turn that insurance float into profitable investments, we may have the next Berkshire Hathaway on our hands.
Leucadia National (NYSE: LUK)
Leucadia is the biggest company of our bunch. This company is already well on its way to being Berkshire Hathaway as it has interests in mining, telecommunications, banking, real estate and healthcare to name a few industries.
The company’s current market cap is $10.6 billion. They have close to $10 billion in assets and just under a billion dollars in long term debt.
Over the last year, Leucadia has gained 10% and even started paying a dividend that yields 0.9%. The company also comes with the lowest P/E ratio of this bunch at just 7.97.
Like the other two companies, Leucadia has a low return on equity over the five year time frame at just 2.7%. If you just take a look at the last year though, you’ll see a return on equity of 13.2%, which is definitely a lot better, and a good return on equity for a growing conglomerate.
It would be very hard, if not impossible, to become the next Berkshire Hathaway. While these companies may in fact try their hands at it, I doubt their goals will come to fruition.
Even though they won’t become Berkshire Hathaway, they will become something in their own right. From looking at these three companies I like two of them as buys now. My favorite two are Markel and Biglari Holdings.
I like Markel because the company has the float from insurance, much like Berkshire Hathaway. In order to become a winner though, Gayner must work with his team in order to put that float to work in the most effective way possible.
I like Biglari because it is different. Biglari plans on investing like Buffett. but he is going to go about it in a more aggressive manner.
I do however see one major issue with Biglari, and that is his ego. He believes he is the best at everything he does and that could one day be his downfall, particularly if he chooses to forego listening to business partners.
Ash Anderson has no position in any stocks mentioned. The Motley Fool recommends Markel. The Motley Fool owns shares of Markel. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!