Berkshire Hathaway Inc. (BRK.A), Chicago Bridge & Iron Company N.V. (CBI): When Buffett Speaks – We Listen

At the end of 2012, backlog stood at $10.9 billion. Analysts now estimate that backlog by the end of 2013 could grow to over $12 billion to $13 billion. By looking at the compounded and consistent growth in the company’s backlog, you know that it’s doing something right.

A cash machine

Berkshire Hathaway Inc. (NYSE:BRK.A) only buys into businesses with a proven track record of consistently growing earnings. And the reported earnings-per-share isn’t what Buffett refers to as earnings because these can be easily manipulated. “Real” earnings are cash earnings, or free cash flow (FCF). In that regard, Chicago Bridge & Iron Company N.V. (NYSE:CBI) is literally an ATM. In the years 2003 – 2005, the company brought home $302 million of FCF. In the years 2006-2008, FCF has grown to $655 million. Finally, in the most recent period (2009-2011), FCF stood at $836 million. I suspect that in the next three year period, FCF will cross the $1 billion threshold. Notice that between 2006 and 2008, CB&I doubled FCF over the previous three-year period. The growth continued in the most recent three-year period, with FCF increasing another 28% over the previous period. Clearly, demand for Chicago Bridge & Iron Company N.V. (NYSE:CBI)’s services is growing, and these numbers demonstrate management’s ability to execute during periods of growing demand.

The Fool looks ahead

CB&I has all it takes to be another successful Buffett stock. It gushes free cash flow, it’s highly dominant in its sector, and it has a proven future “backlog” of profits. All that’s left for you to do is to come and pick it up.

Shmulik Karpf has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Shmulik is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article When Buffett Speaks – We Listen originally appeared on Fool.com is written by Shmulik Karpf.

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