Are These 2 Stocks Buffett's Next Takeover Targets?

On May 4, more than 30,000 investors descended upon downtown Omaha, Neb., to join the "Oracle of Omaha" at the annual Berkshire Hathaway shareholders meeting.

Like a rock concert mixed with the evangelical zeal of true believers, this meeting has earned its label as the "Woodstock of capitalism." Not bad for an event that started in 1982 with just 15 investors in an insurance company lunch room.

Not only has the annual meeting expanded, but Berkshire Hathaway (NYSE: BRK-A) has grown exponentially to become the most expensive stock in the United States at more than $167,000 a share. Not to mention, the book value per share has increased an astounding nearly 600,000% over the history of the insurance conglomerate's lifetime.

As Carla Pasternak, Chief Strategist of our High-Yield Investing newsletter, recently pointed out, Berkshire Hathaway shares don't yield a dividend, even though the company's holdings paid out $1.35 billion in dividends in the past quarter.

 

Clearly, investing directly in Berkshire Hathaway doesn't make sense if you're looking for yield, and the share price is out of reach for most of us. However, as you can see from Warren Buffett's stellar long-term performance, it makes good sense to be a Buffett watcher and invest in the same companies as Berkshire Hathaway.

Buffett has spent years crafting the persona of a friendly, frugal, grandfatherly investor -- but inside this affable exterior resides the mind of an expert gambler and the heart of a tiger. Investors can learn a tremendous amount from his wisdom.

The lessons from this month's meeting include that Buffett believes bonds are a terrible investment right now and stocks are fairly priced. He believes strongly in big banks and thinks health care is the top issue facing the United States.

Drilling into his words and recent actions reveals two companies that Buffett may soon move to acquire.

DaVita HealthCare Partners (NYSE: DVA)
Buffett has been ramping up his ownership in this health care company over the past several years. He is currently the company's largest shareholder with 13% of all outstanding shares. As you know, Buffett loves companies with sustainable competitive advantages, and he buys only for the long term.

DaVita is one of the largest dialysis providers in the United States and serves more than 150,000 patients. Interestingly, the DaVita interest originates from a relatively new Berkshire money manager.

Hailing from the hedge-fund world, Ted Weschler is being trained by Buffett to manage the entire portfolio eventually. Weschler held a major stake in DaVita at his former firm and has followed the dialysis business for years, making him an expert in the company and sector.

The company just reported first-quarter results, beating estimates on both revenue, with about $2.8 billion, and earnings per share (EPS) of $1.84. With projected revenue of $11.65 billion and EPS of $7.46 for its current fiscal year, the firm is fundamentally solid with strong long-term prospects. Combine the numbers with Weschler's love of the business, and DaVita is likely on Berkshire's short list for acquisition.

Campbell Soup (NYSE: CPB)
Buffett loves the consumer products sector. He recently acquired the king of ketchup, H.J. Heinz (NYSE: HNZ), and has said that at the right price, he may be interested in another large consumer product company.

Campbell's shares have rallied more than 30% this year, and the company commands about 60% of the U.S. soup market. Rumors of a Berkshire acquisition sparked the present rally.

Campbell's boasts a 140-year history and a $15 billion market cap. Sales increased 10% in its most recent quarter, to $2.33 billion. During the first six months of the year, the company reported an 8% increase in adjusted EPS. Despite flat revenues and earnings in 2012, Campbell's increased its dividend payout to above 2.5%.

Risks to Consider: Both of these companies are solid fundamentally and technically. However, headwinds exist that may deter Buffett from making his move. Buffett loves to buy undervalued companies at low prices, but both stocks are overpriced. In addition, Campbell's soup is controlled by the founder's heirs. Buffett is interested only in friendly acquisitions, so if the heirs don't want to sell, Buffett is unlikely to pursue a deal.

Action to Take --> I like both stocks as breakout close-entry candidates. Regardless of Buffett's interest, they are both solid firms with strong histories and bright futures. While both companies are speculative Buffett takeover targets, DaVita appears to be the more likely candidate of being acquired.

P.S. -- StreetAuthority's High-Yield Investing is dedicated to bringing investors the highest-paying and most stable stocks, bonds and funds on the market. Click here to learn how to profit from some of our latest income investing picks, including the name and ticker symbol of one company that has raised its dividends 205% since going public...