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Four Deals Primed for Warren Buffett's $40 Billion War Chest

Stocks in this article: BRK-B AIG DISH GM BTU

NEW YORK ( TheStreet) -- As Berkshire Hathaway's (BRK.A) earnings recover from the financial crisis, the investment conglomerate's founder Warren Buffett increasingly faces the challenge of where to plow his cash hoard to generate investment returns.

From large stock buys such as a $10.7 billion purchase of IBM (IBM) shares last year to mega deals like the $26.3 billion takeover of railroad Burlington Northern Santa Fe in 2009, Buffett's "elephant gun" is the most talked about financial firearm in the markets.

The latest results from Berkshire released last Friday reported cash up from $37 billion to $40 billion at the end of the second quarter. Additionally, the fact that Berkshire sold $3 billion worth of stock in the second quarter gave Buffett watchers just enough information to make the suggestion that he could be selling stock in plans to finance a major transaction.

Bloomberg speculated earlier this year -- after Berkshire's annual meeting -- that Deere (DE), Henkel, Cummins (CMI) and Mosaic (MOS) fit within Warren Buffett's stated M&A parameters.

Meanwhile, others wonder whether a string of minor-sized newspaper purchases will preempt a larger deal for the New York Times Company (N YT), Gannett (GCI) or Lee Enterprises (LEE) -- which Buffett increased his stake in recently -- turning Buffett into a print media mogul.

At this time last year, Berkshire's cash swelled to $47.9 billion only to fall back below $40 billion after it plowed over $9 billion in cash to buy chemicals giant Lubrizol in early 2011.

Meanwhile, after posting strong earnings growth from most businesses in the second quarter, Berkshire may need a next big investment idea to make use of recovering earnings at some housing-related units and growing revenue in new operations like Burlington Northern and Lubrizol.

For instance, Burlington Northern revenue climbed from nearly 7% to $5.1 billion in the quarter, and its earnings were higher by $110 million versus the year-ago quarter.

Berkshire's manufacturing, retail and services business saw across the board increases in revenue versus the prior year. Housing related earnings from Acme Building Brands, Benjamin Moore (paint), Johns Manville (insulation), Shaw (carpets) and MiTek (roofing) were also part of a manufacturing group that saw revenue increase 35% and earnings go higher by 56% versus the year ago period.

In light of the improving Berkshire earnings and the massive cash hoard, here's a look at some unconventional deals that Berkshire could target in coming quarters, as its cash swells to what could be uncomfortable levels.

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