In an interesting episode of Squawkbox Mario Gabelli (Trades, Portfolio) highlights a couple of companies that Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio) might look at next. With Buffett unlikely to ever buy a defense company, Gabelli skips over that sector (although he likes several names in the industry) but instead focuses on water infrastructure:
Valmont Industries
In the water sector, Valmont Industries (VMI, Financial) is the best suggestion with its $3.66 billion of total enterprise value. It trades at total EV/EBITDA multiple of 11.5x and has only just over one turn of EBITDA in debt. The company isn’t a pure play on water. Only one of its five divisions, the irrigation segment, focuses on agricultural irrigation equipment, and related parts and services under the Valley brand name.
Xylem
Xylem (XYL, Financial) is a spinoff with two divisions, Water Infrastructure and Applied Water. In total its enterprise value adds up to $8 billion. Not exactly an elephant but no mosquito either. At 13.4 x EV/EBITDA and with only one turn of EBITDA in debt it isn’t exactly a screaming bargain either.
Layne Christensen
Gabelli mentions Layne Christensen (LAYN, Financial), but with a sub-$300 million market cap it is surely too small for Buffett to bother looking at. If Berkshire ever invests here, it will happen because one of its lieutenants, Todd or Ted, likes it.
Mueller Water Products
Gabelli really likes to play the water trend, but Mueller Water Products (MWA, Financial) is probably too small as well. The company deals in pipes and valves and all kinds of water transport systems. At just $2 billion of enterprise value, Buffett isn’t likely to bother. The company has two turns of EBITDA in net debt, and it trades at an overall EV/EBITDA of just below 12x.
Autonation
Gabelli calls Autonation's (AN, Financial) business model an excellent fit with Buffett’s access to zero cost float. At $11 billion of enterprise value it would be a sizeable acquisition for Buffett. The stock has come down a lot since the start of the year, and the company is now trading at an EV/EBITDA of 11x. The company has a lot of debt, but that likely includes a lot of financing which should be discounted a fair bit. This is definitely Gabelli’s suggestion I like the best. Interestingly Buffett’s friend Bill Gates (Trades, Portfolio) owns a fair bit of the company’s shares and other guru’s with sizeable stakes are Edward Lampert and Murray Stahl (Trades, Portfolio).
