This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Buffett Picks Put Berkshire in Growth Push

In 2011, Berkshire put $9 billion of cash to work buying Lubrizol, a maker of chemicals for automotive engines and a similar amount to take a 5.51% stake in IBM (IBM). Those two 2011 investments typify Berkshire's strategy as it weeds out crisis-era investments and refocuses on long-term growth in earnings and dividends.

Companies wholly earned by Berkshire added more than $9 billion in pretax 2011 earnings, contrasting with the $393 million that its only owned company MidAmerican energy contributed to earnings just seven years ago.

Berkshire's purchases of Lubrizol and railroad Burlington Northern Santa Fe -- along with earlier acquisitions of Iscar, Marmon Group and MidAmerican -- set the fund up for consistent earnings growth in years to come, he said in his letter.

"Unless the economy weakens in 2012, each of our fabulous five should again set a record, with aggregate earnings comfortably topping $10 billion," wrote Buffett.

Those investments also help Berkshire to put its prolific cash to work in a manner that may help it outperform stock indices. In 2011, Berkshire's operating companies spent $8.2 billion for property, plant and equipment, eclipsing a previous record by more than $2 billion.

For the U.S. economy, Buffett made a point that investing in those operating companies will be a minor stimulus that shows "invest in the U.S." is still alive and well.

"About 95% of these outlays were made in the U.S., a fact that may surprise those who believe our country lacks investment opportunities," said Buffett in his letter.

Berkshire's acquisitiveness may accelerate, based on the tone of Buffett's annual letter. The company is looking to make additional large purchases in an expected earnings boost.

"We now have eight subsidiaries that would each be included in the Fortune 500 were they stand-alone companies," Buffett said. "That leaves only 492 to go. My task is clear, and I'm on the prowl."

The second piece of Buffett's 2011 strategy was to take multibillion-dollar stakes in IBM and Bank of America (BAC), in a move that Berkshire expects will add to its outperformance as earnings growth at those companies leads to increasing dividend payouts.

With a $5 billion preferred stake and 700 million in-the-money warrant contracts in Bank of America, along with a $10.9 billion purchase of IBM shares, Berkshire now has four key investments that it expects will drive investment gains.

Berkshire's largest investment is in Coca Cola (KO), and its third largest-investment is in Wells Fargo (WFC), with 8.8% and 7.28% share stakes, respectively.

"Had we owned our present positions throughout last year, our dividends from the 'Big Four' would have been $862 million," said Buffett.

2 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,943.81 +28.74 0.17%
S&P 500 1,967.57 +2.89 0.15%
NASDAQ 4,415.49 +19.2860 0.44%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs