Serious Money: Buffett Going Global -- Part 5

To continue the saga of what might be on Warren Buffett's foreign wish list, consider the current holdings of Berkshire Hathaway (BRK.A/BRK.B), the largest of which is insurance. The insurance industry has been hard hit by the economy, but it also has the greatest potential to rebound of any industry. Insurance companies have huge cash flow and a large float (mandated by government regulation) that can be used for investments. This has been a major contributing factor in Buffett's success.

Unlike the construction, automobile or financial sectors that have been met with an economic tidal wave that destroyed demand, there is no lack of demand in the insurance industry. The insurance companies have been hurt by the shrinking of their investment portfolios more than loss of demand or even claims, accepting companies that wrote swaps, like American International Group (AIG).

When next "my pal Warren" invests abroad he may not have to go very far.

He may find Canada would provide an investment opportunity to his liking and there are plenty of sound choices, starting with Manulife Financial Corp (MFC), the largest insurance company, capitalized at $26.7 billion.

Manulife is the holding company for The Manufacturers Life Insurance Company and John Hancock Financial Services, providing individual life insurance, group life and health, group pension products, variable annuities, wealth management, and other financial products through its US, Canadian, Asian, and Japanese operating divisions. Manulife's reinsurance division provides life, health, and accident reinsurance.

I'm not sure how the Department of Justice or the SEC would view a Berkshire acquisition that increased it's dominance so broadly, but there are certainly many large players around for competition, such as MetLife, Inc. (MET). Met is a $33 billion company that is also worth a look for investors but that's a different story.

Manulife at today's open of $15.30 is trading near it's 52 week low of $14.08. That is 39% off its high of $24.98. It has a trailing P/E of 7.2 with a PEG ratio of .93. Given it's P/S of 0.69 (very cheap) and it's book value of 1.0, I could see Buffett buying the entire company and selling off the parts of the company that can not be easily integrated with current holdings.

Between the the weeding out of periphery holdings, the increased scale, the thinning out of redundant departments and Buffett's deployment of the float, this has the potential to be another home run. The Canadian economy has been more stable than most making it a conservative place to allocate funds. MFC is paying a healthy 3.3% yield. That too would increase the bottom line if it was acquired by Berkshire Hathaway.

This is a ongoing series. The following links have are provided to the previous posts.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture and planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: He own shares of BRK.B.