Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), the conglomerate led by billionaire investor Warren Buffett, definitely has some cash to speculate. On the finish of the second quarter, Berkshire had greater than $146 billion of cash and equivalents on its steadiness sheet — even when you think about Buffett likes to maintain no less than $20 billion readily available, that is a ton of shopping for energy.
What’s extra, it appears to be like just like the Oracle of Omaha may lastly be prepared to begin placing cash to work. Up to now within the third quarter, Berkshire has accomplished a $10 billion (together with debt) acquisition of pure fuel property so as to add to its power enterprise, and has invested greater than $2 billion to extend its Bank of America (NYSE: BAC) stake.
And whereas we don’t know what stocks Buffett and his stock-pickers could be contemplating, two stocks that could possibly be wonderful additions to Berkshire Hathaway’s portfolio are Realty Earnings (NYSE: O) and Lemonade (NYSE: LMND).
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Bulletproof earnings and a time-tested model
Realty Earnings is an actual property funding belief, or REIT, that primarily owns single-tenant net-leased properties leased to retail tenants.
Whereas the phrase “retail” may understandably offer you reservations, Realty Earnings invests in the correct of retail. Particularly, the corporate’s tenants function three various kinds of companies:
Low cost-oriented retail. Suppose greenback shops and warehouse golf equipment. These companies are recession-resistant and are additionally much less weak to e-commerce disruption than most different varieties of retail.
Service-based retail. Auto service facilities and well being golf equipment are two examples. Whereas the COVID-19 pandemic hasn’t precisely been a constructive catalyst for these kinds of retail, they need to be simply positive long-term as they’re proof against e-commerce headwinds.
Non-discretionary retail. Within the pandemic, companies that promote issues folks want have performed fairly nicely. And these companies (assume drug shops and comfort shops) additionally do nicely it doesn’t matter what the economic system is doing.
As well as, tenants are on long-term leases with gradual hire will increase inbuilt. We already know Buffett likes this enterprise model, as fellow net-lease retail REIT STORE Capital (NYSE: STOR) is in Berkshire’s portfolio. And since Realty Earnings is a number of instances the scale of STORE, it could possibly be a good way for Berkshire to deploy a few of its capital.
The way forward for Buffett’s favourite enterprise
It is no secret that Buffett is a giant fan of the insurance coverage enterprise. GEICO and Berkshire’s reinsurance operations are the spine of your complete conglomerate. So whereas recent-IPO insurance coverage firm Lemonade might sound a bit too high-tech or speculative for Buffett, I am not so certain.
Lemonade’s enterprise model is to leverage trendy know-how to make the insurance-buying course of as fast and straightforward as potential, in addition to reasonably priced. Via its synthetic intelligence-powered platform, Lemonade permits prospects to get quotes in only a couple minutes and file claims rapidly and simply.
It is also worth mentioning that Berkshire hasn’t been afraid so as to add some up-and-comers in industries that Buffett loves. To call a current instance, Buffett has been a serious fan of fee processing for a while, with investments in American Categorical, Visa, and Mastercard in Berkshire’s stock portfolio. And when up-and-coming Brazil-based fee processing enterprise StoneCo (NASDAQ: STNE) went public a couple of years in the past, Berkshire purchased greater than 4% of the excellent shares. Lemonade might play an analogous position within the firm’s funding technique.
Would Buffett think about any of those?
Simply to reiterate, there isn’t any indication that Buffett or anybody else at Berkshire Hathaway is definitely contemplating any of those stocks. They only have some traits Buffett has been drawn to previously and could possibly be a great slot in Berkshire’s portfolio.
That mentioned, no matter whether or not Warren Buffett has curiosity in these corporations or now, these are two fascinating companies that could possibly be wonderful additions to a portfolio that goals to realize a pleasant mixture of progress and earnings over the long term.
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Matthew Frankel, CFP owns shares of American Categorical, Bank of America, Berkshire Hathaway (B shares), Realty Earnings, and STORE Capital and has the next choices: brief January 2021 $23 places on Bank of America. The Motley Idiot owns shares of and recommends Berkshire Hathaway (B shares), Mastercard, STORE Capital, and Visa. The Motley Idiot owns shares of Stoneco LTD and recommends the next choices: lengthy January 2021 $200 calls on Berkshire Hathaway (B shares), brief January 2021 $200 places on Berkshire Hathaway (B shares), and brief September 2020 $200 calls on Berkshire Hathaway (B shares). The Motley Idiot has a disclosure coverage.
The views and opinions expressed herein are the views and opinions of the writer and don’t essentially replicate these of Nasdaq, Inc.