Warren Buffett isn't going to leave tens of billions in cash just lying around. The odds are good, according to analysts, that he'll use it to make another large deal.
Buffett's Berkshire Hathaway (BRK.A) - Get Report recorded a total of $72.7 billion in cash at the end of June, up about 1% from the end of December despite this year's $37 billion acquisitions of aerospace supplier Precision Castparts and battery-maker Duracell, Edward Jones analyst Jim Shanahan said in a telephone interview. Some $61.8 billion was held at the Omaha, Neb.-based conglomerate's insurance businesses alone.
"They are locked and loaded and ready to make another big acquisition, in our opinion," Shanahan said. "They're sitting on another pile of cash, and you start to wonder where they're going to spend it."
Brian Meredith of UBS and Cathy Seifert of S&P Global concur in that assessment. "With that much cash, they've got to deploy it," Seifert said in a telephone interview. "My sense is that they will be in the marketplace at some point."
Buffett himself said last September that he'd be looking "every day" for another acquisition, even though the Precision Castparts purchase was a temporary drain on cash.
Possible targets now might be in the energy and finance industries, Shanahan noted. Buffett already holds stakes in financial institutions from Bank of America (BAC) - Get Report to Wells Fargo (WFC) - Get Report and American Express (AXP) - Get Report, and other companies in sector are comparatively cheap after trailing the performance of the broader markets this year amid global volatility.
Additionally, Berkshire recently completed the purchase of Medical Liability Mutual Insurance Co., New York's largest provider of liability insurance for medical professionals, for an undisclosed sum.
In the energy sector, Buffett -- famous for advising investors to be greedy when others are fearful -- has nearly tripled his stake in Phillips 66 (PSX) - Get Report to $6.2 billion over the past year, even as oil prices slid.
When the company decides on another purchase, it will likely stick to its past practices of making deals with a handshake and completely them quickly, while relying on Buffett and vice chairman Charlie Munger for much of the due diligence, the two executives said earlier this year.
"We've made plenty of mistakes in acquisitions, plenty, and we've made mistakes in not making acquisitions," Buffett told investors during the company's annual meeting at the end of April. "But the mistakes are always about making an improper assessment of the economic conditions in the future of the industry or the company. They're not a bad lease, they're not a specific labor contract, they're not a questionable patent, they're not the things that are on the checklist for every acquisition by every major corporation in America."
During the three months through June, the first quarter to include income from Precision Castparts and Duracell over the entire period, Berkshire profit surged 25% to $5 billion, or $3,042 a share, the Omaha, Neb.-based company said Friday.
Still, quarterly operating earnings of $2,803 a share, which excluded gains on investments and derivatives, trailed the $2,856-a-share average of estimates from data-provider FactSet and the $2,898 projection from UBS analyst Brian Meredith. He blamed the miss partly on double-digit declines in sales and profit at Burlington Northern, the railroad that Buffett purchased for $26.6 billion in 2009.
"Overall, Berkshire remains well capitalized and continues to make acquisitions and investments in its businesses that should enable it to grow earnings faster than the S&P 500," Meredith said in a note to clients.
So far this year, the company's stock has climbed 9.6% to $216,870 a share, compared with a gain of 6.8% by the S&P 500.