Buffet is sitting on a cash hoard, but has been quiet so far in the market sell-off surrounding COVID-19. I’m taking a look at businesses Buffett could buy. I want to keep this realistic. I may surprise readers in that these are not “elephants”.

Many point to large “elephants” when thinking of businesses buffett could buy because he’s conglomerate has gotten so big. I don’t necessarily agree — Here’s my rationale:

• Why does Buffett have to spend all of his cash position on one position?  
• He prefers not to deal with auctions or hostile takeovers. Large boards can’t say they’ve done their fiduciary duty by just selling without running a wide process. Smaller companies might be able to if its a fair first offer or because they don’t expect any competing bids in the current environment.
• Smaller companies have larger growth runways. Many of the names I list below are strong competitors in a fragmented space, which means they can consolidate and outgrow GDP.

PPG: $20BN market cap, $24BN Enterprise Value

• Business Description: sells coatings (i.e. paint) for a wide variety of end markets such as house paint, aerospace, industrial and automotive refinish
• Why buy? Paint is a very attractive business model. Consolidated business with pricing power because paint typically is such a low cost of any project. The space is still somewhat fragmented, so there is roof for more acquisitions, but outside of that the paint names are FCF machines. He already owns some Axalta as well, which PPG competes against in the automotive refinish space, but PPG offers so many other types of paint as well.
• Why now? PPG does have industrial and aerospace exposure, which likely will take a hit due to coronavirus. However, you are buying a great franchise at a fraction of the price of Sherwin Williams.
• What’re you paying for it? Right now, PPG trades at 12.3x 2021 EPS (SHW trades at 18x) and nearly 8% FCF yield. That seems too cheap for an above-average business.

WR Grace: $2.5BN market cap, $4.3BN Enterprise Value

• Business Description: makes catalysts which produce chemical reactions.
• Why buy? Catalysts are high-impact technology. In refining, if I want to upgrade a barrel of crude to make the highest-value product, catalysts can help with that. Similarly, they are used to make plastics like high-density polyethylene. There are very few producers, its impact and low-cost relative to operations leads to consistent pricing power, and relatively asset-light leads to high returns on capital. Also, Todd Combs made a fortune on WR Grace in the past and is now CEO of GEICO. No doubt he sees the price move as an opportunity.
• Why now? Trades for the lowest multiple I’ve seen in a long time and its long-term business prospects will be fine.
• What’re you paying for it? 7.6x 2021 EPS for a business that consistently earns 25%+ returns on capital

Beacon Roofing: $1.1BN market cap, $4.6BN Enterprise Value

• Business Description: roofing distributor as well as other building products (wallboard, ceilings, etc) .
• Why buy? Roofing distribution is a good business. Demand is mainly repair and replace driven and leads to very stable results (if your roof had a leak, it doesn’t matter if the economy is weak you are probably going to get it replaced… it may even be covered by homeowners insurance). While distribution is a low margin business, they earn high returns on capital as they don’t actually manufacture anything (so low capex) and sell a lot of product. The space is also highly fragmented so it could provide room to continue to roll up the roofing space as well as add in adjacent products where it makes sense.
• Why now? Cheap.
• What’re you paying for it? 9x 2021 EBITDA and 5.7x 2021 EPS. These are some of the lowest multiples ever for this company.

TJ Maxx: $56BN market cap, $64BN Enterprise Value

• Business Description: off-price retailer
• Why buy? Its a retailer, but has staying power. Costco has been described as “experience shopping” and TJX is no different. Returns on capital consistently exceed 30%.
• Why now? TJX announced it would close stores due to the virus. Results clearly may be impacted. Perhaps Buffett doesn’t buy the whole thing, but TJX is a great business I could see him scooping up.
• What’re you paying for it? Not super cheap at 16x 2021 EPS, but that’s a narrow focus for a company with returns on capital of that level.

What businesses do you think Buffett could buy?