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This confirms a theme Buffett has been pursuing for a while: international exposure in basic industry. "These are basically old-line manufacturing businesses that are really up his alley," says Todd Lowenstein, a co-portfolio manager at the HighMark Value Momentum Fund (HMVMX) who follows Buffett's moves closely. "He has wanted to get manufacturing with overseas exposure and a global platform to build on."
This makes sense because industrial growth in many foreign economies is stronger than industrial growth in the U.S. In November, Chinese industrial production grew 17% compared with a year before, while South Korea's output rose 11%. Production growth in India and many Latin American countries has been in the single digits but still higher than in the U.S. Many economists believe this trend will last for years, even if U.S. industrial production picks up because of the weak dollar.
Marmon is a private company, so there are no publicly traded shares that allow you to piggyback on Buffett's play here. To find similar picks, I turned to value investors who follow Buffett and his investing approach.
Ed Walczak, a portfolio manager at Vontobel Asset Management's Phoenix Focused Value Fund (JVVAX), likes General Electric (GE, news, msgs) as a way to get inexpensive exposure to basic industrial production and foreign growth. Solid strength in the company's global infrastructure business -- which sells equipment for power generation and water systems -- offset weakness in its credit card business in the last quarter. "We believe GE stock will likely outperform in a U.S. recession," says Morgan Stanley (MS, news, msgs) analyst Scott Davis.
Lowenstein likes Mexican beverage maker and retailer Fomento Economico Mexicano (FMX, news, msgs) as a value play that offers exposure to foreign growth. Its beer division, Cerveza, makes Dos Equis and Sol beer. Another division owns a 54% position in a Coca-Cola (KO, news, msgs) bottler serving Central and South America. And a third operates a Mexican convenience-store chain called Oxxo.
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Lowenstein reckons the breakup value of these three divisions to be $55 to $60 per share, while the stock recently traded for $34. He thinks the company could get taken over by a bigger beer producer like Heineken Holding (HKHHF, news, msgs). "The industry is consolidating, and this is one of the last great pieces that can be rolled up," says Lowenstein.
Credit Suisse (CS, news, msgs) analyst Carlos Laboy agrees and has an "outperform" rating on the Mexican company.
Graco (GGG, news, msgs) is another beaten-down manufacturing play in the Buffett mold. The stock, down nearly 30% since August, traded recently at $33 a share. It has taken a hit even though it has many of the qualities that Buffett looks for, such as consistent long-term earnings growth, financial strength and above-average return on capital, according to John Reese of Validea.
Reese's money-management firm uses screens designed to replicate the investment approaches of market gurus like Buffett. And Graco, which makes products such as compressors, pumps and equipment used to apply paint, gets the highest score possible in Validea's screen that looks for stocks Buffett would like.
Avoid the financials
Buffett also recently deployed relatively small amounts of cash to create a company that insures municipal bonds and to purchase a reinsurance division from ING Groep (ING, news, msgs), a Dutch bank and insurance company.Some commentators take this as a sign that Buffett thinks the financial sector has hit its low. But to really understand his view on financial stocks, it's more important to look at what he hasn't done.
It can take years, for example, to build a sizable business insuring municipal bonds because the debt is issued with long maturities and dribbles into the market in relatively small quantities each year, says Justin Fuller, an analyst who follows Berkshire Hathaway for Morningstar (MORN, news, msgs).
The logical way to get into the business would be to buy an existing player, preferably one whose stock has been crushed -- MBIA (MBI, news, msgs) or Ambac Financial (ABK, news, msgs), for example.
Instead, Buffett struck out on his own. That could be a sign he considers the balance sheets and stocks of MBIA and Ambac, and others in the sector, too toxic to touch as the subprime-mortgage mess unwinds.
And despite Buffett's penchant for putting money into sectors in distress, he's not among the financial heavyweights bailing out the big banks wounded by subprime exposure.
"Everyone has been speculating that he is going to invest in Citigroup (C, news, msgs), but he is not touching the financial sector," cautions Whitney Tilson, a Buffett devotee who is also co-portfolio manager of the Tilson Focus Fund (TILFX). "He has zero interest because he thinks things are going to get a lot worse."
In the December CNBC interview, Buffett was asked whether a recent bout of trouble for banking stocks might be the last shoe to drop. His response might well apply to the fresh round of write-downs we saw last week. "No, no," responded Buffett. "When people start dropping shoes, you really don't know whether they're a one-legged guy or a centipede."
At the time of publication, Michael Brush did not own or control shares of any of the equities mentioned in this column.
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