Today's big dealmaking news is Berkshire Hathaway's purchase of Lubrizol for $9B in cash. The appeal of LZ's fundamentals is clear. The 34% ROE and long term debt less than two times net income are hallmarks of the Warren Buffett criterion. The less obvious attraction here is Lubrizol's sector.
LZ makes specialty lubricants with wide applications in petroleum drilling and refining. Like BNSF's position astride desirable rail lines, LZ's position in a specialty sector is tough to dislodge. Railroads and energy services are bulk carriers of the kinds of commodities that advanced economies use with abandon.
Niche servicers of the energy production sector are long-term bets on the world economy's demand for energy. If Mr. Buffett doesn't believe in commodity scarcity, he's certainly doing a darn good imitation of a Peak Oiler.
Full disclosure: No positions in LZ or BRK-A at this time.
LZ makes specialty lubricants with wide applications in petroleum drilling and refining. Like BNSF's position astride desirable rail lines, LZ's position in a specialty sector is tough to dislodge. Railroads and energy services are bulk carriers of the kinds of commodities that advanced economies use with abandon.
Niche servicers of the energy production sector are long-term bets on the world economy's demand for energy. If Mr. Buffett doesn't believe in commodity scarcity, he's certainly doing a darn good imitation of a Peak Oiler.
Full disclosure: No positions in LZ or BRK-A at this time.
