In the recently released Berkshire Hathaway (NYSE:BRK.A, BRK.B) shareholder letter, Warren Buffett profiled a select handful of operating companies that not only reported earnings growth from the previous year, but also set records in terms of either sales or profit performance. The companies aren't frequently mentioned by Buffett in his letters, so the latest letter offers unique insight into businesses and industries that he or his operating leaders have found worth owning. Below is an overview of the four record-breakers Buffett highlighted along with some publicly traded peers that coattail investors may find appealing. (To learn more about Warren Buffett's investing style, see Warren Buffett: How He Does It.)
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TTI Inc. - Electronics Distribution
Buffett boasted TTI, an electronic components distributor in Fort Worth, Texas, reported sales 21% ahead of a previous high reached in 2008. The company also beat its previous record for pretax earnings by nearly 60%. TTI distributes electronics components, many of which sell for less than $1 and include mundane products such as resistors, capacitors and connectors. The company operates in North America, Europe and Asia, the last of which is the largest geographic location, accounting for more than 50% of TTI's sales.
A publicly-traded option is Ingram Micro (NYSE:IM), which distributes larger electronics including printers, servers, personal computers and related software products. Ingram has been whipsawed by the global recession and reported a hefty earnings loss in 2008, although cash flow remained firmly in positive territory. Sales in the most recent year grew 12% to nearly $10 billion. Net income grew nearly 60% to $318.1 million, or $1.94 per diluted share in 2010. Cash flow details have yet to be released.
Forest River - RV and Boat Manufacturing
Berkshire's Forest River, an RV and boat manufacturer, posted record sales of $2 billion and record profits, the details of which were not provided in Berkshires most recent shareholder letter. The unit likely had a very volatile couple of years given that its products are discretionary, big-ticket items that often experience a drop in demand during tough economic times.
For investors seeking a publicly traded option similar to Forest River, Brunswick Corporation (NYSE:BC) is the largest publicly traded boat manufacturer, while firms including Winnebago Industries (NYSE:WGO) sell RVs. Both have seen a recovery in sales, just like Forest River.
CTB - Farm Equipment
CTB sells farm equipment and set an earnings record during 2010 for Berkshire. Its products include egg collectors, counters, grain conveyors, animal pens, and agricultural systems and solutions in general. In terms of publicly traded companies in this sector, John Deere (NYSE:DE) is one of the majors; it focuses on larger farm and construction machinery, but sells to a similar customer base of farmers across the globe.
H.H. Brown - Footwear
Buffett reported that shoe company H.H. Brown also enjoyed record sales and earnings in 2010. This was due in large part to the Born brand of footwear. Public rivals include Deckers Outdoor (Nasdaq:DECK), which sells popular UGG brand footwear as well as Teva, and Kenneth Cole (NYSE:KCP), which sells a range of fashionable footwear, handbags and related apparel. However, investors should know that the CEO of Kenneth Cole just resigned unexpectedly, which could impact share prices.
The Bottom Line
It's no secret that Buffett places a huge emphasis on management, so it may very well be that the above businesses were acquired because of their talented owners. As such, the industries may not stand out as much for their appeal, but in the case of the electronics distribution and farm equipment spaces, they could be solid grounds for further investment due diligence. It's also difficult to find publicly traded alternatives as competitive or fiscally-fit as those existing under the Berkshire umbrella, but there are likely a number of well-managed rivals that could make good investments. (To learn more, see Think Like Warren Buffett.)
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