Warren Buffet, the Oracle of Omaha has just completed his biggest business deal, he just purchased
Precision Castparts for $32.4 billion in cash. Checking on the website of Precision Castparts, it is a company which manufactures complex metal components and products. It’s biggest customers are Airbus, Boeing, GE and Rolls-Royce to name a few.
This latest acquisition of Warren Buffet is once again aligned with his investing strategies which have proven to be very effective throughout the years. Here are some tips we can take away from this purchase and which we can employ when searching for companies we can invest in for the long term:
- The company should be profitable, in other words, the company should be making money, no sense in investing in a company that isn’t earning or might be losing money. Precision Castparts Corp. earned $1.53 billion on $10 billion in sales last year. That’s a lot of earnings for a year.
- Check on a company’s debts if it has and how large it is, your return on your investment will be significantly impacted if a company has to pay its debts rather than give back to you its earnings. Precision is not highly leveraged on debt, meaning it returns its earnings to its investors rather than paying off debt.
- Warren Buffett always emphasizes that he invests in companies with stable management, some with more than 20 years of service in the company. He follows this principle with his own company, Berkshire Hathaway, where he keeps a lot of his management in place. The CEO of Precision has been there for 27 years.
- Warren Buffett doesn’t invest in sophisticated or techie products/companies. Precision is a no frills company and might be a surprise acquisition to most of us but if we were to align to Warren Buffett’s investing philosophy it would make perfect sense.
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