Warren Buffett is the greatest investor of all time. I think we can all agree on that.

But as time has gone on, the Oracle of Omaha has moved away from a value strategy and into something far more conservative. As far as I can tell, this has happened for a few reasons. Charlie Munger convinced him that he’d be better off to buy quality businesses at a fair price. Berkshire Hathaway Inc. has become so big that Buffett is limited to just taking stakes in the largest stocks. And as he’s reached his 80s, it’s obvious that Buffett, like many retirees, has become more conservative.

Once you understand that about Buffett, it’s easy to make sense of some of his most recent deals. Take his involvement with 3G capital in taking Kraft private and merging it with Heinz. Based on the offer price, Buffett paid nearly 50 times Kraft’s 2014 earnings to bring it into the Berkshire fold. Even if you take an average of the company’s last four years of earnings, Buffett still paid nearly 30 times earnings for the maker of peanut butter and Nabob coffee.

I don’t want to question the wisdom of such a legend, but it’s hard to see the logic behind paying that kind of multiple for a company, even one as well known as Kraft.

How about Restaurant Brands?

The other high profile deal Buffett was involved in recently was the takeover of Tim Hortons by Burger King, once again backed by 3G. Buffett agreed to spend nearly US$3 billion on Restaurant Brands International Inc.’s (TSX:QSR)(NYSE:QSR) preferred shares, getting an annual dividend of 9% on his investment. He also got a free warrant which gave him the right to acquire 8.4 million additional shares, which was exercised pretty much immediately.

At the time Buffett defended the deal, saying that both Tim Hortons and Burger King were terrific brands with sizable moats. Tim Hortons is as Canadian as hockey or beavers, while Burger King is mentioned in the same breath as the giants of the fast food business. Plus, the deal involved food, which Buffett loves to invest in.

But once we look a little deeper, I’m not sure I see the logic. Shares of the newly combined company are expensive on pretty much every value metric. If you exclude unusual items, the company earned a little over US$300 million on nearly US$12 billion in sales in 2014. That works out to less than US$1 per share, which puts shares at nearly 40 times earnings.

If you believe analysts, 2015 won’t be any better. The consensus earnings estimates for this year come in at US$0.97 per share, which is pretty much identical to 2014. Yes, the company will get some cost savings from synergies, but those look to be cancelled out by additional interest costs.

I’m not sure where earnings growth will come from either. There is potential for Tim Hortons to continue expanding across the United States, but it’s facing some difficult headwinds—including entrenched competition and a lack of success outside of a small area. At least both Tims and Burger King have potential for further expansion outside of North America, but this will be heavily contested as competitors rush into the same markets.

When it comes to his involvement in Restaurant Brands International, I think Buffett should follow some of his own advice. He has often told investors to acquire stakes in great companies at fair prices. He’s got the great company part down; I just think he needs to work on the fair price part. Until investors can get shares at a more reasonable valuation, I think they should pass.

Forget Restaurant Brands and own this stock instead!

Does your portfolio have rock-solid blue chips at its core? If it does... GREAT! If not, you might want to reconsider your strategy.

Either way, we think you should take a look at what our analysts have identified as one TOP stock for 2015 and beyond--a stock with a tollbooth-like business; a solid management team; and a reliable, consistent, and rising dividend--and you can download the name, ticker symbol, and price guidance absolutely FREE.

Simply click here to receive your Special FREE Report, "1 Top Stock for 2015--and Beyond."


Let’s not beat around the bush – energy companies performed miserably in 2015. Yet, even though the carnage was widespread, not all energy-related businesses were equally affected.

We've identified an energy company we think offers one of the best growth opportunities around. While this company is largely tied to the production of natural gas, it doesn't actually produce the gas. Instead, it provides the equipment required to get natural gas from the ground to the end user. With diversified operations around the globe, we think it's a rare find in the industry.

We like it so much, we’ve named it as 1 Top Stock for 2016 and Beyond. To find out why, simply enter your email address below to claim your FREE copy of this brand new report, "1 Top Stock for 2016 and Beyond"!

Fool contributor Nelson Smith has no position in any stocks mentioned. The Motley Fool owns shares of Berkshire Hathaway.