I view Warren Buffett as one of the best investors in the world. He has done exceptionally well at growing Berkshire Hathaway into a huge business thanks to the returns generated by himself and Charlie Munger. There are a few ASX shares that I think fit with his philosophy.
Buffett hasn't outlined every factor that he considers when investing. But, one of the main things he likes to do is stay within his circle of competence, sticking to industries he knows. He also likes businesses that are capable of producing good growth for years ahead.
If I were Warren Buffett, I'd buy these three ASX shares for Berkshire Hathaway's portfolio.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
Soul Patts is the ASX share that's most similar to Berkshire Hathaway. The Australian company is an investment conglomerate that owns private businesses and stakes in listed businesses such as TPG Telecom Ltd (ASX: TPG), New Hope Corporation Ltd (ASX: NHC), Tuas Ltd (ASX: TUA) and Apex Healthcare.
Soul Patts focuses on investments that generate good, defensive cash flows. It invests in the sorts of areas that Buffett may like, and it largely avoids technology companies (like Buffett does).
The ASX share has been listed for over 100 years, so it has shown excellent longevity already.
Soul Patts continues to expand its portfolio by making additional investments – agriculture and bonds/credit have been a recent focus by the company.
As a bonus, it has grown its dividend every year since 2000 and has a trailing grossed-up dividend yield of 4%.
Brickworks Limited (ASX: BKW)
Brickworks is an interesting business – it is the largest brickmaker in Australia and is involved in a number of other building products, including roofing, masonry, cement and battens. Berkshire Hathaway owns Clayton Homes, a modular home manufacturer somewhat similar to Brickworks.
But, Brickworks also owns a sizeable chunk of Soul Patts shares, making its underlying assets closer to Berkshire Hathaway.
Brickworks also has a large amount of money invested in industrial properties. The ASX share owns a 50% share in a joint venture with Goodman Group (ASX: GMG) where large warehouses are being built on excess Brickworks land. Building warehouses on this empty land increases the value of the land and unlocks rental profit.
The growing dividends from Soul Patts and the larger rental profits are funding bigger Brickworks dividends. It offers a trailing grossed-up dividend yield of 3.5%.
Collins Foods Ltd (ASX: CKF)
Fast food business Dairy Queen is owned by Berkshire Hathaway, so Buffett has shown his willingness to invest in the quick service restaurant (QSR) restaurants.
I think Collins Foods is the most compelling food ASX share at the moment. It operates KFCs in Australia, Germany and the Netherlands, as well as Taco Bells in Australia.
Over time, this business is expanding its networks in Australia and Europe, adding scale and boosting the profitability of the business.
KFC is a strong brand, and people keep coming back for more. In the FY24 first-half result, same store sales (SSS) grew by 6.6% at KFC Australia and 8.8% for KFC Europe.
The estimates on Commsec suggest Collins Foods could grow its earnings per share (EPS) by 44% between FY24 and FY26. This would put the Collins Foods share price at under 13x FY26's estimated earnings.
