Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) recently reported its second-quarter results, and one number overshadowed all the rest. As of June 30, the Warren Buffett-led conglomerate reported nearly $277 billion in cash and short-term investments on its balance sheet.
Buffett has talked about firing his "elephant gun" and making a massive purchase several times in recent years but has said that high business valuations have been a roadblock. However, with more financial flexibility than ever before, could now be the time?
To be clear, we have no idea what Buffett and his team might be considering. But just to put the company's financial flexibility into perspective, here are five companies that Berkshire could conceivably buy in cash. Some of these could certainly make sense for Berkshire, but we'll also get into why I don't expect Buffett to pull the trigger anytime soon.
5 companies Berkshire Hathaway could buy in cash
Warren Buffett insists on keeping $30 billion in cash on hand at all times as a "just in case" buffer, but even if we back this out, Berkshire could spend $243 billion without borrowing money. And with this cap in mind, here are some companies that are in the realm of what Berkshire Hathaway could potentially buy.
Company (Ticker Symbol) | Market Cap | Does Berkshire Already Own Shares? |
|---|---|---|
Salesforce(NYSE: CRM) | $232.6 billion | No |
Adobe(NASDAQ: ADBE) | $227.7 billion | No |
T-Mobile(NASDAQ: TMUS) | $222.4 billion | Yes |
Advanced Micro Devices(NASDAQ: AMD) | $208.3 billion | No |
McDonald's(NYSE: MCD) | $194.1 billion | No |
Data source: Yahoo Finance
Berkshire could also potentially acquire several "smaller" companies. For example, Nike(NYSE: NKE), Starbucks(NASDAQ: SBUX), and MetLife(NYSE: MET) have a combinedmarket cap of $242.3 billion. In fact, there are only 26 companies whose market caps are greater than Berkshire's spendable cash.
There are a couple of caveats to keep in mind. First, Berkshire would likely have to pay a premium to any of these companies' market caps if it wanted to acquire one. And second, Berkshire doesn't necessarily have to only use cash to make an acquisition. With one of the best credit ratings in the world, Berkshire could potentially borrow billions more to extend its buying power even further, potentially putting in reach companies like Costco(NASDAQ: COST), which has a $360 billion market cap.
Why Buffett is in no hurry
These are an example of what Buffett could potentially buy, but I don't think it will actually buy any of them -- or any other large businesses. At least, not anytime soon.
Don't make the mistake of thinking that $277 billion is burning a hole in Warren Buffett's pocket. Buffett has even less of a sense of urgency to put this money to work than he did a few years ago when the company's cash stockpile first started to swell to twelve-figure levels.
The reason is that Berkshire's uninvested cash isn't just sitting there in a pile of money -- it is mostly invested in short-term U.S. Treasury securities that pay about 5%. This means that Berkshire's cash is likely generating about $14 billion in annual income for the company that can be reinvested however Buffett and his team see fit. In short, while Buffett would love a higher return, it's a productive asset for Berkshire that provides billions in risk-free growth capital.
Having said that, if rates start to sharply fall, holding so much cash could be less attractive -- and that's especially true if a stock market correction makes business valuations contract. Nobody has a crystal ball that can predict the future, but it's fair to say that if opportunities arise, Berkshire has a ton of ability to take advantage.
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Matt Frankel has positions in Berkshire Hathaway, MetLife, and Starbucks. The Motley Fool has positions in and recommends Adobe, Advanced Micro Devices, Berkshire Hathaway, Costco Wholesale, Nike, Salesforce, and Starbucks. The Motley Fool recommends T-Mobile US and recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
