Warren Buffett has a problem. One-hundred and twelve billion of them to be exact. That’s the amount of cash that Berkshire Hathaway (NYSE:BRK.A,NYSE:BRK.B) has on its balance sheet at the end of 2018. And odds are, Buffett’s cash hoard has only grown over the last three months as his vast empire continues to pay some hefty dividends.
The problem for Warren Buffett and Berkshire is that amount of cash starts to be a real drag on its profitability and returns. So, for the last year or so, Buffett has been searching for a firm to buy. And given BRK’s size, it needs to be a big one to move the needle. Unfortunately, the Oracle of Omaha hasn’t found just the right one yet.
But there could be plenty of choices.
If there is one thing Buffett likes, its simple to explain businesses that churn out hefty cash flows year in and year out. That’s basically what Fastenal (NASADQ:FAST) has been doing for the last 50 years.
FAST produces and sells a variety of hardware and supplies that other industrial firms or businesses need to keep running. This includes everything from boring nuts and bolts to more exotic fare like tools and pumps. It’s basically an industrial supplier to the industrials. That’s a good place to be.
Over the years, Fastenal has cemented itself as one of the top players in this niche. The key for the firm comes down to its relationships with other industrials and manufacturers. FAST’s system makes it easy for procurement managers to order. The firm operates more than 2,220 branches and a hefty online website. But the real win is that FAST has been able to get inside manufacturers themselves. This comes from Fastenal’s storage bin replenishment and vending machine programs. Here, FAST is able to directly integrate into a manufacturer’s ordering/supply chain and allows for ease of repeat customers. Simply, FAST is able to integrate itself into a customers’ workflow. Last year, the firm processed more than 41 million orders and pulled in more than $5 billion in revenues. More importantly, it has allowed FAST to grow at a very hefty clip in terms of margins and profits.