Discover Financial Services (DFS), American Express Company (AXP): Staying Ahead of Warren’s Elephant Gun

Since Berkshire’s sweet spot is in the financial sector, it possible that Berkshire would greatly value PayPal’s growth prospects.  As online payments continue to grow at 15%-plus, according to Internet Retailer, Paypal’s leadership position as “the” online payment service becomes more valuable.

eBay Inc (NASDAQ:EBAY)’s online auction would be a cash generating mechanism or potential spinoff for Berkshire.  For all of the potential positives of this deal, valuation is high so shares would first need to drop to a reasonable multiple.  As we know, Buffett pays his price–not the market’s.

Iconic middle-American brand

An acquisition of one of the most iconic American brands of our time, Deere & Company (NYSE:DE), would be the proverbial feather in Warren Buffett’s cap.  Like eBay, this would also be a huge acquisition, worth over $60 billion.  But with Deere, Berkshire knows what it would get: a proven track record of sales growth, the best brand in the industry, and great management.

Trading at 10 times EBITDA, the valuation is not outrageous, and Deere & Company (NYSE:DE) is a highly cyclical stock, so a patient investor like Buffett can wait until the right time to get his price.  Similar to Heinz, Deere is an iconic American brand, recognizable and highly valued by a strong customer base.

Deere & Company (NYSE:DE)‘s cash flow, in the $1 billion to $2 billion range annually, would provide further fuel for Berkshire’s coffers.  As cliché as it may sound, this deal would be a storybook ending to Buffett’s career as he partners with another middle-American icon.

For speculative investors with long-term horizons, these three companies represent lower-risk opportunities to join the Buffett safari.  Wise traders will imitate Buffett by paying the right price at the right time, but will stay slightly ahead of the Wall Street legend. He may only have a few shots left, but given Buffett’s legendary status, they will likely be right on target.

The article Staying Ahead of Warren’s Elephant Gun originally appeared on Fool.com is written by Spencer Houlihan.

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