Warren Buffett is undoubtedly one of the most prolific investors
history... and for good reason.
During the first decade of the new millennium (2000-2010), Buffet's
Berkshire Hathaway (NYSE:
returned a blistering 76%. By comparison, the S&P 500 was down
11.3% for that period...
Performances like that are why I always like to keep an eye on
where the "Oracle of Omaha" is placing his bets. After all, if
Buffett can beat the S&P 500 37 out of the 45 years since he
started Berkshire back in 1967, then it stands to reason he can do
So after taking a look at some of Buffett's more notables moves in
2011 -- including a $5 billion investment in
Bank of America (NYSE:
, and an $8.7 billion
of the specialty chemical company Lubrizol -- I think Buffett is
getting ready to put even more of Berkshire's $37 billion in cash
to work in 2012. Here's why...
Buffett still says stocks are attractive. According to Buffett's
address to shareholders on
last month, Buffett believes stocks will perform better than "
, gold or any other investmentoption over time". He followed by
saying stocks still appear relatively cheap even after prices have
improved from earlier this year.
But that begs the question... where will Buffett invest next?
After careful deliberation with my research staff, I think we may
have found the answer in Japan.
The huge earthquake and tsunami that devastated the country last
year hasn't soured Buffet's opinion on Japanese firms.
"There are lots of opportunities in Japan," Buffett said during a
visit to the country to inspect a tool-making company owned by a
Berkshire Hathaway subsidiary. Buffett has made
bets on Japan's
contracts, according to
I think that's a sign Buffett could getting ready to buyout a major
electronics manufacturer in Japan... If that happens, it could
spawn a wave of buyouts as U.S. companies decide to put the $2
trillion in cash on their balance sheets to work.
But even if Buffett doesn't invest a dime in Japan, I think we can
still make some significant money here.
You see, corporate America has plenty of ammo to wage takeover
battles. U.S. companies have $1.9 trillion in cash sitting on their
balance sheets. That's 7.4% of their total assets -- the largest
share since 1959. For comparison, in the better times of 2006,
assets came to about $1.5 trillion.
Of course that cash hoard reflects the caution many companies feel
about investing in their business in an
where growth is painfully slow. But at this point I'd say there is
little doubt things are improving. I'm betting that in the year
ahead we will begin to see a shopping spree on
as companies look for businesses to buy that will boost their own
I don't have to tell you about some of the heady returns you can
see from owning a stock that becomes a
. Overnight gains of 20%... 30%... even as much as 50% aren't
uncommon. But investing solely on the basis of a takeover can be
risky... that's why you have to pick your candidates wisely.
So which companies could make takeover targets?
One of my favorite places to look right now is the energy patch.
With energy prices high and likely to rise for years, buying
smaller companies in the field has become of the fastest ways for
larger companies to grow.
One such company is
Approach Resources (Nasdaq:
, an independent oil and natural gas company headquartered in Fort
Approach Resources is a small company -- just $1 billion in
. However, it is growing quickly. In 2011, its total proved
reserves increased by 52%. And because it is small, the company is
at a point to where it can increase production at a rapid pace.
Last year saw not only reserves increase, but production jumped by
Approach Resources invests in various Texas shale deposit and
tight-sand oilfields. Being relatively concentrated geographically
gives the company a cost advantage, as well as a significant risk
management advantage, as it is drilling in proven areas. Production
is about 55% oil and natural gas liquids, and 45% natural gas.
Of course, this fast growth has been great for investors. In the
past two years, Approach Resources has beaten the S&P 500 by
249 percentage points.
And all that makes the company highly attractive for a takeover.
But even if Approach Resources doesn't get acquired in the next 12
months, I think the overall investment theme still remains. After a
shaky year in 2011, companies are going to start actively looking
for more growth opportunities.
Action to Take -->
Therefore, Buffett proctored or not... we can expect a strong
activity within the next 12 months. As a result, I expect there's a
lot of money to be made investing in potential buyout targets right
A major increase in mergers and acquisitions is only one of the
investing trends I'm predicting to catch on in the coming year.
I've made 10 more predictions
, each of which I feel offers investors a good chance toprofit over
the next 12 months. To see my full list of 11 predictions,
follow this link here
Andy Obermueller does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.
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