“It’s my kind of deal and it’s my kind of partner,” billionaire investor Warren Buffett said of his $23 billion offer with 3G Capital to buy ketchup-to-baked beans maker Heinz — another bit of folksy Buffettry that seems destined for the canon of Warren’s wit and wisdom.
James Mackintosh, the FT’s investment editor, adds that it’s Buffett’s kind of acquisition. Not the value buy of popular perception — at an offer price of 20 times forward earnings, Heinz is not coming cheap — but quality and safety, a company with steady earnings and a strong balance sheet. “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price,” Buffett said in 1989, and he has always followed his own advice on that score.
Buffett and his holding company Berkshire Hathaway have the financial brains and brawn, respectively, to gear up for such deals. That is not a combination as readily available to many investors. And there are not many investors of Buffett’s quality with or without the balance sheet of an insurance company to deploy. The leverage lets Buffet squeeze more profit out of such deals, though these days even he just beats rather than annihilates the returns of the broader market.
For those up for it, Mackintosh offers a helpful list of five stocks in the Heinz mold that fall into the category of what-would-Warren-buy: Kimberley-Clark, PepsiCo, The Southern Co, Consolidated Edison and General Mills. Beyond being somewhat humdrum cash generators with strong balance sheets, they mostly all fit another Buffett investment filter — profitable companies with a portfolio of timeless name-brand products. Heinz, no suprise, is a better fit than any of the other five.
Buffett is also happy with a degree of timelessness to his investments. He has the patience to ride out the fads of the market and discipline to ignore the herd. “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful,” he said in 2001. Easier said than done.