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Where Warren Buffett Will Aim His Acquisition 'Elephant Gun' Next

Billionaire investor Warren Buffett -- looking to repeat the success of Berkshire Hathaway's $34 billion purchase last year of rail company Burlington Northern Santa Fe -- plans to make another major acquisition this year, according to company's annual shareholder letter. Berkshire (BRK) won't dilly-dally with small purchases here and there. Instead, expect just a few major acquisitions as well as capital investments in BNSF and Berkshire's utilities. The bet will be similar to the one that led to the BNSF purchase: a future of rising energy costs.

We will need both good performance from our current businesses and more major acquisitions. We're prepared. Our elephant gun has been reloaded, and my trigger finger is itchy.
The Burlington acquisition is interesting because it wasn't just a bet that higher gas prices would stifle its main competitor, the trucking industry. It also was a bet that demand to transport coal and other heavy goods would continue to rise. Buffett, who said owning Burlington will increase Berkshire's "normal" earning power by well over 30 percent on an after-tax basis, is sticking to that outlook:
Both of us are enthusiastic about BNSF's future because railroads have major cost and environmental advantages over trucking, their main competitor. Last year BNSF moved each ton of freight it carried a record 500 miles on a single gallon of diesel fuel. That's three times more fuel-efficient than trucking is, which means our railroad owns an important advantage in operating costs. Concurrently, our country gains because of reduced greenhouse emissions and a much smaller need for imported oil. When traffic travels by rail, society benefits.
Over time, the movement of goods in the United States will increase, and BNSF should get its full share of the gain. The railroad will need to invest massively to bring about this growth, but no one is better situated than Berkshire to supply the funds required. However slow the economy, or chaotic the markets, our checks will clear.
Berkshire's future acquisitions, meanwhile, will focus not so much on transportation, but power generation and anything related to the electrical transmission grid. These days, that means investing in the smart grid, a wide-ranging industry that involves anything to do with upgrading the electrical grid and allowing for two-way communication between the utility and home or business. The opportunities in this sector are boundless, which haven't been lost on companies like IBM, Cisco, Echelon and Honeywell.

Renewable energy companies also are likely, especially considering that Berkshire has already invested in this industry. Late last year, MidAmerican Energy -- a subsidiary of MidAmerican Energy Holdings, a unit of Berkshire -- announced to would build 258 wind turbines in Iowa. To put that into perspective: MidAmerican's added more wind-powered capacity in this one project than the U.S. did in the third quarter of 2010.

Photo from Wikicommons

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