There is a news report recently that Warren Buffett might be accumulating a stock that he does not want to disclose yet. Last time he did that he bought a big chunk of IBM. What is he buying now?
The check list:
1. Simple business with wide moat that lasts decades.
2. Good management that is both able and honest.
3. Consistent and good owners' earnings return without high leverage.
4. Attractive price.
There are probably many companies that could qualify. However, if he is deploying around $10 billion into one stock like what he did in IBM, only a handful of large/mega cap names look possible.
I can think of a few names: DIS, MSFT, PEP, MCD and UTX.
He sold his shares of DIS long ago and it is probably unlikely that he is changing his view about the company and management.
He said publicly he is never going to buy MSFT.
He holds 9% of KO, so it is unlikely that he will also take a big position in PEP.
Then here comes my guess: McDonald's (MCD).
It is a low-tech predictable business with long-term history of excellent returns and global expansion. The management team did a excellent job during the downturn. P/E and EV/EBITDA are both a little bit higher than IBM but still reasonable.
I also think UTX would be a good choice, but the only thing is the market cap is a bit lower than ideal.
What do you think?
Disclosure: The author does not have position in any name mentioned and does not intend to trade any name mentioned in the next 48 hours.
