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Warren Buffett's Window of Opportunity?

Less competition from private equity buyouts and cheaper stock prices could be creating a window of opportunity for Warren Buffett to make a big acquisition. A Bloomberg piece out today speculates on Mr. Buffett's "expanding" opportunities and names some potential targets.

Reporter Josh Hamilton quotes money manager Thomas Russo as saying, "A time of turmoil among conventional investors on Wall Street is helpful for Berkshire Hathaway ... (Buffett's) patience has put him in a position where he certainly has the capacity to act." (See our post Buffett Basics for Troubled Timesfor more on applying Mr. Buffett's general investment philosophy during volatile market moves.)

That capacity includes Berkshire's $46 billion in cash. A lot of the private equity firms that might be bidding (that is, driving up the price) for the same properties have to deal with a credit crunch that's boosting their borrowing costs, a problem Mr. Buffett avoids with his stash of cash.

And Buffett has made it clear he's in the market, telling CNBC back in May (see video clip below) that he wanted to make an acquisition in the $40 billion to $60 billion range. At that time, however, he told us it's "hard to find big deals. We're competing against private equity and other corporations."

What are Buffett's potential bargains? Bloomberg lists:

  • WellPoint

Why? Buffett already has a small stake in the health insurance company, the stock is down over 6% during the last 90 days and its earnings have grown at an annual rate of 24% over the past six years.

  • Nucor

Why? The steel company's shares are down 22% since May while earnings have soared from just over $160 million in 2002 to more than $1.7 billion last year.

  • Kohl's

Why? Earnings at the retailer have increased at an annual rate of 18% over the past half-decade, and debt is just under 20% of equity. Kohl's stock is down 17.5% over the last 3 months.

  • Ikea (closely held)

Why? Successful Buffett-lunch bidder Monish Pabrai tells Bloomberg that Ikea, the international home furnishings retailer from Sweden, has "a very powerful brand and business model that would be hard to duplicate. I would think that's almost a perfect fit for Berkshire."

Remember that all this is speculation. We don't know for sure what Mr. Buffett will do or when he will do it. As Pabrai points out at the conclusion of the Bloomberg piece, "Just being cheap isn't enough. You need seven moons to line up for Berkshire to act. We've probably got a couple more moons lined up without private equity in the picture."

ENCORE PRESENTATION


Here's the video clip of our interview with Mr. Buffett from May 7 in which he talked about his hopes for a big acquisition and the difficulties he was having at that time finding something suitable to buy, in part due to competition from private equity.





Questions? Comments? Email me at buffettwatch@cnbc.com

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