What Warren Buffett might buy

Buffett owns MidAmerican Energy Holdings, an energy producer. He might want to expand his energy exposure by adding Valero, America's largest oil-refining company, which also has a no-layoff policy. There just aren't that many refineries around, and no one is building many new ones. That makes Valero a potentially lucrative asset. Also, there's so much demand for gasoline that U.S. refineries have to run at close to full capacity. "There's high demand for its refineries, which are clearly in short supply today," says Cohan.

Valero isn't cheap. Its shares trade at $72.48, near their 52-week high, and its market cap is $44 billion. But it's a well-run company. And with $90 billion in annual sales, its debt load of $5.3 billion is relatively small.

Lehman Brothers
The Oracle of Omaha is no fan of astronomical pay packages, the kind of thing handed out like candy on Wall Street. But he certainly understands the finance business. He had a long-term investment in Salomon Brothers, and even took over as interim chairman in 1991 for 10 months to help turn around the beleaguered investment bank.

He has stayed away from Wall Street since, but Lehman could be the kind of firm to lure him back. Richard Fuld is one of the longest serving chief executives on Wall Street, having taken over the job in 1993, and he's widely respected. He has built Lehman into a diverse financial powerhouse with steady earnings. The firm has branched out into private equity and investment management, acquiring money manager Neuberger in 2003. It's not cheap: Its stock has more than doubled in the last three years, pushing its market cap to $40 billion.

Lowe's
There's much speculation that rival Home Depot is a takeover target for private equity firms, and Buffett has bought Home Depot shares. But it's Lowe's that could draw acquisition interest. CEO Robert Niblock has polished the company's image with cleaner, brighter stores, which are known for providing good customer service, and it has been grabbing market share from Home Depot.

The company's stock is trading at the midpoint of its 52-week range, at $30. And if the housing slump continues, it could drop further. That could give Berkshire an opening. It already owns carpet retailer Shaw Industries and might be willing to shell out $46 billion to join Niblock's market-grabbing ride.

Buffett clearly would like to buy a large company that is tightly run, spews off a lot of cash, and has a great brand name. But those are few and far between, especially with the private equity firms sniffing around for deals. A lot of folks think that buying auto insurer Progressive would help Geico expand its market share, but with a $17 billion market cap, it is slightly smaller than what Buffett says he is looking for. Then again, Buffett could opt to buy several smaller companies that are under the radar, and surprise everybody. One thing is clear: Buffett is anxious to put his cash to use.

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