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It would be a mistake to call Warren Buffett a simple man, but in reality that is what he is. While many make the man mysterious and complex due to his prestige and accumulation of massive wealth, his success has come from a relatively uncomplicated system.
Of course, it is easier to do what he does with such a giant war-chest. It helps to have leverage, and with his cash Buffett is able make things happen quicker and at more favorable terms than the average investor.
For example, Buffett was able to step in during the initial stages of the financial crisis and provide capital to firms like Goldman Sachs. His understanding that the siege on the banking system would eventually resolve itself paved the way for huge returns. And he made an absolute killing on his deal with Goldman.
Yesterday we learned of his new prey. Under the guise of betting on America, Buffett and his Berkshire Hathaway made an offer to buy all outstanding shares of Burlington Northern (BNI) for a significant premium.
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The Hidden Reason Why Buffett Wants BNI
In making the announcement Buffett confidently claimed that rail would play a big role in the recovery of the economy. What he did not say was that this was a bet on the U.S. dollar.
In fact, the U.S. dollar is the primary reason for why Buffett is making this move. With the dollar plunging, manufacturing in this country becomes much more attractive to foreign importers.
How do we get those goods overseas? The ports and shipping will play a role no doubt, but so, too, will rail. BNI will be a huge beneficiary of increasing manufacturing activity and the transport of goods from factory to port.
It is a very simple formula, and making a bold investment in advance of the actual trend is what this deal is all about. Yes, it is a bet on American business, but it is more about a bet on American business selling its goods overseas.
Are there other businesses beyond the rails and BNI that will benefit from this emerging activity? Here are five manufacturing firms that Buffett’s BNI will be transporting en masse as the dollar continues its decline.
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Weak Dollar Stock #1 – Whirlpool ()
The collapse of the domestic housing market crushed businesses that made things that went into the building boom. One of the biggest makers of stuff for homes is Whirlpool ().
During the real estate bull market, WHR was firing on all cylinders. When the market crashed, so did WHR stock. Since bottoming earlier this year, WHR has made a big recovery. That recovery was based on a recovery in the domestic real estate market. What has yet to be priced into the stock is a boom in overseas shipments. WHR products are becoming cheaper by the day for overseas buyers. The increase in exports could propel WHR stock to $200 per share, more than double its current price of $74 per share.
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Weak Dollar Stock #2 – Caterpillar ()
Nothing says manufacturing like Caterpillar (). Those monster trucks made for earth-moving, digging and trucking are the epitome of making stuff in the good old USA. Emerging markets are gaining confidence in building again, and a declining dollar makes CAT equipment cheap for them.
Look for big sales gains in CAT as the dollar drops. I expect CAT stock to explode above $100 per share as a result of the weak dollar. My target is $120, but this stock could go to $150 simply on the strength of exports. Dollar weakness has yet to be priced into this stock. I would buy it before the rest of the market figures out what is happening here. Buffett buying BNI is a big clue that investors should hone in on.
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Weak Dollar Stock #3 – Starbucks ()
We have seen what exports can do for fast food restaurants. Can the same happen with coffee? In some ways, it is already happening.
Starbucks () has made a big push overseas and many of its stores can be found in foreign markets. A weak dollar is going to accelerate the trend greatly. SBUX knows how to saturate a market. As it becomes more attractive for the company to increase foreign sales, look for SBUX to follow the on-every-corner approach that helped the company dominate the U.S. market. Even if the U.S. market struggles for SBUX, the foreign potential is still quite large and will offset domestic weakness.
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Weak Dollar Stock #4 –
PepsiCo ()PepsiCo () understands the importance of global sales. So much so that its CEO, Indra Nooyi, was born and raised in India. Having led the company’s global strategy for more than a decade prepared her well for the challenges of the leadership of the entire company. That preparation is timely, given the weakness in the dollar and the explosion of opportunity for sales outside U.S. borders.
Heck, we even have some goodwill building with respect to political leadership. Perhaps the world still wants to be like the U.S. And being like the U.S means drinking PepsiCo products. The weak dollar will help make that happen.
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Weak Dollar Stock #5 –
Apple ()Apple () has been dominating the domestic market over the last few years. Its products and innovations have been huge successes. The latest winner is the iPhone smart phone.
Now, with a weak dollar, look for sales of this fantastic product to explode across the globe. If you think the success domestically is something, wait to see what sales do overseas. Cell phones made in Asia sold very well in the U.S. when the dollar was king. Now the reverse will be true. AAPL is already a must-own stocks and now the case gets even better with a weak dollar. The rich keep getting richer, and that is the case with AAPL. There is another double here simply due to global sales.
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