The Motley Fool

Why Soul Patts looks a great investment for income and growth

It must be somewhat irritating to have the press speculate about your passing on a regular basis, but Warren Buffett continues to take it all with his usual spirit and simply carries on. However Berkshire Hathaway Inc. (NYSE: BRK.A) is no ordinary business and Buffett has hinted his successor could well be amongst those he refers to as his three ‘Ts’. Let’s have a look at one of them.

If you can imagine yourself spending your teenage years pouring over balance sheets and profit & loss statements; winning a scholarship to Harvard; co-founding the non-profit Smart Woman Securities; completing Harvard Business School; and then applying for a job with Berkshire Hathaway. Not just any job, but a responsible position close to Warren Buffett.

You would be Tracy Britt, Buffett’s direct financial assistant / trouble-shooter and on the board of several Berkshire Hathaway investments including Heinz.

Only a few years ago Tracy Britt was quoted as saying – “I had to drown out a great deal of unsolicited advice saying that I absolutely must work before going to business school. I was told again and again that I didn’t have sufficient experience, I wasn’t prepared, and I was downright crazy to think that anyone would hire me in the investing field straight from business school”.

Thankfully for her, Warren Buffett didn’t agree; and his decision to give her an opportunity is yet another testament to the lateral thinking in the DNA of Berkshire Hathaway. His trust has paid off; and Tracy Britt continues to make tough decisions with her implementation of operational improvements in a number of investments. What’s more she is a dedicated value investor; prompting Warren Buffett to say “she thinks like I do”. We shall hear more of her. Incidentally, the other ‘Ts’ are Todd Combs and Ted Weschler.

The nearest industrial company we have to a Berkshire Hathaway would probably be Washington H. Soul Pattinson and Co. Ltd (ASX: SOL); which has produced a shareholder return of 13.6%pa over the past 10 years. It has also outperformed the All Ordinaries Accumulation Index over 1, 3, 5 and 15 year periods. Listed in 1903 Soul Pattinson has never raised further capital or missed a dividend.

Investments include New Hope (coal), Brickworks, Australian Pharmaceutical Industries, TPG Telecom, Ruralco Holdings, Clover Corporation (food additives) and the Malaysian-based Apex Healthcare Berhad.

Soul Pattinson has a very strong balance sheet with $1.46 billion net cash, good operating cash flow and net tangible assets of $12.26 per share. I have a lot of respect for conglomerate style investment companies with longevity as the evidence points to them being both cautious with shareholder funds and simultaneously progressive in their portfolio commitments. In my view Soul Pattinson ($14.60) is a solid buy for risk averse equity investors.

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Motley Fool contributor Peter Andersen doesn't own shares in any company mentioned

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