Berkshire Hathaway has truly incredible financial flexibility right now.
Berkshire Hathaway (BRK.A) (BRK.B -2.18%) recently revealed that it now has over $325 billion in cash and short-term investments on its balance sheet, by far the most it has ever had. This is a result of some major stock sales, the ongoing profitability of Berkshire’s operating businesses, and a lack of stock buybacks recently.
To put it mildly, $325 billion gives Berkshire and its CEO Warren Buffett unprecedented financial flexibility to pursue opportunities, including a potential massive acquisition, which Buffett has been hoping for the chance to make for years.
In fact, there are only 23 U.S. companies that have market caps greater than Berkshire Hathaway’s cash stockpile as of this writing. Between the New York Stock Exchange and Nasdaq, there are more than 5,400 companies that Berkshire could theoretically buy in cash.
5 companies Berkshire could buy right now
First off, it’s important to note that Buffett insists on keeping $30 billion in reserves at all times, so if we exclude this, it reduces Berkshire’s spendable cash to only $295 billion. And although Berkshire could acquire any of more than 5,400 public companies, and many more private ones, let’s limit this discussion to those that are large enough to be a needle-mover for a $1 trillion conglomerate and that have characteristics Buffett likes to see.
With that, here are five companies that are well within the realm of possibilities for a Berkshire acquisition:
- Coca-Cola (KO 0.15%): The food and beverage giant has been a longtime Berkshire stock holding and it’s no secret that Warren Buffett is a big fan of the business. Coca-Cola has a roughly $280 billion market cap as of this writing, but Berkshire already owns 9.3% of the stock, so it would only have to buy the roughly 93% it doesn’t already own.
- Chevron (CVX 0.59%): Berkshire has been investing heavily in energy stocks in recent years, and Berkshire already owns about 6.5% of Chevron, so its $280 billion market cap puts in within the realm of possibility for a full acquisition.
- McDonald’s (MCD -0.80%): One of the best-known brands in the world, excellent profitability, and lots of valuable assets (real estate) could make McDonald’s attractive. Plus, Buffett has been a regular customer of the $212 billion market cap company.
- Adobe (ADBE -0.30%): Buffett isn’t really a “tech guy” himself, but Berkshire’s investment portfolio has gradually incorporated more of the tech sector. Adobe has excellent profitability and the wide moat that comes with products used by virtually every internet user to one extent or another. With a $213 billion market cap, Berkshire could afford it.
- Caterpillar (CAT -0.82%): Infrastructure investment is likely to be a long-tailed trend in the U.S. and in many key areas around the world, and $184 billion market cap Caterpillar could be a big winner.
Would Berkshire want to buy any of these companies?
To be perfectly clear, we have no idea if Warren Buffett or Berkshire’s other leaders have any interest in acquiring any of these companies, especially while the market is at an all-time high. What’s more, Berkshire would likely have to pay a significant premium over the current market value to actually buy any of them.
However, this puts into perspective just how large Berkshire’s cash stockpile has become. It’s also worth noting that Berkshire could potentially stretch its budget even further if it was willing to borrow money. After all, Berkshire has one of the best corporate credit ratings in the United States and has access to low-cost borrowing if it chooses.
I don’t think Berkshire will make a big acquisition anytime soon. The $325 billion in cash is earning a roughly 5% yield, with most in short-term Treasury securities, so Buffett is happy with some risk-free income for now. But this gives Berkshire unmatched financial flexibility to take advantage of opportunities that arise, and if we end up getting a recession or stock market correction in 2025, a $325 billion checkbook in Warren Buffett’s hand could become very interesting.
Matt Frankel has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Adobe, Berkshire Hathaway, and Chevron. The Motley Fool has a disclosure policy.
