Last week it was announced that Berkshire Hathaway Inc, the conglomerate led by billionaire investor Warren Buffett had purchased the USA's largest privately owned car dealership. In an interview with CNBC, Buffett described the deal as an opportunity to purchase a "strong" business and said that he expects the business to expand through acquisition.
Given Buffett's track record of identifying businesses with economic moats, Australian investors are rightly keen to apply his thinking in a domestic context. This copy-cat mentality has led some Buffett-style investors to buy into Aurizon Holdings Ltd (ASX: AZJ) – a rail freight company with similarities to Berkshire's huge rail business Burlington Northern Santa Fe Corp (BNSF).
For investors keen to emulate Buffett's thinking regarding the car dealership business model there are currently two ASX listed companies which could fit the bill.
Automotive Group Holdings Ltd (ASX: AHE) has a $1.15 billion market capitalisation. Its stock price is up 237% in the past decade. In terms of providing exposure to automotive retailing, Auto Group is a less leveraged play on this segment than our second opportunity due to Auto Group's decision in recent years to diversify its earnings base and expand into logistics.
AP Eagers Limited (ASX: APE) has a market cap of $1 billion and is up 301% in the last 10 years. With a business focussed on motor vehicle and truck sales, AP Eagers could be a closer comparison to Buffett's recent acquisition.
According to Morningstar, Auto Holdings is forecast to grow earnings per share (EPS) by 8.8% in the current financial year. This places the stock on a forecast price-to-earnings (PE) ratio of 12x and a forecast dividend yield of 6.1%. This looks appealing and like AP Eagers, Auto Holdings could be worth a closer look if you are keen to buy a solid business paying a strong yield.
