In the annual shareholder letter released Feb. 11 by Berkshire Hathaway (NYSE: BRK-B), Warren Buffett announced the need for major acquisitions to help him grow Berkshire’s profits at a “decent rate.” Given the billions in cash Berkshire generates (Buffett estimates $12 billion in annual earnings power) in any given year, Buffett declared his “elephant gun has been reloaded” and that his “trigger finger is itchy” for big acquisitions.

His itch was partially scratched, recently when, on March 14, Berkshire announced it would be acquiring specialty chemical firm Lubrizol (NYSE: LZ) for $9 billion in cash and the assumption of $700 million in debt. Buffett said he liked Lubrizol’s global leadership position in several areas, which include its lubricant additives for engine oils and related fuel additives for gasoline and diesel fuel. The buyout price-to-earnings (P/E) ratio is less than 14 based on trailing earnings and will qualify as the fourth-largest acquisition in Berkshire’s storied history.

Buffett recently said he was still interested in more acquisitions and isn’t ruling out any sector or area of the world, save for electronics companies. In his words, he is looking for businesses that he can reasonably predict will continue to operate successfully in five to 10 years.

With that in mind, here are three potential candidates for his next big purchase. Even if Buffett doesn’t take over these companies, each stands on its own as a solid candidate for investors to consider.    

1. Clorox (NYSE: CLX)
Business: Consumer products
Trailing P/E: 16

Using the Lubrizol purchase as a comparison, Clorox fits many of Buffett’s criteria. For starters, Clorox’s market capitalization is $9.5 billion and long-term debt is just over $2 billion, which is similar to Lubrizol’s enterprise value (the theoretical takeover price to acquire a firm, calculated as follows: market cap + total debt – cash = EV) of just under $10 billion, so it would be relatively easy for Berkshire to digest, even with a takeover premium of around 20%.

Clorox is also an industry leader — 70% of its approximately 60 brands have a number one market share, while another 18% are number two in their category. Clorox’s portfolio of brands includes well-known products such as the namesake bleach, Brita water filters and Kingsford charcoal. Clorox’s brands are relatively recession-resistant and count as consumer staples, meaning their sales trends are stable and should remain so in the next five to 10 years. Overall, earnings have grown at about 10% annually in the past decade and should continue their double-digit pace. 

2. AmerisourceBergen Corp. (NYSE: ABC)
Business: Drug distribution
Trailing P/E: 17

AmerisourceBergen Corp. is one of three leading drug distributors in the United States and has grown profits nearly 17% annually in the past 10 years. With a market capitalization of $10.5 billion, it would  still be digestible. Furthermore, it has more cash on hand than debt, comprising a total enterprise value of $10 billion. The trailing earnings multiple is also reasonable and the forward multiple is less than 16 due to Amerisource’s projected 12.5% profit growth during the next couple of years

Buffett has a history of liking distributors. They require minimal capital to operate and can post high returns for shareholders. Back in 2003, Berkshire acquired Wal-Mart’s (NYSE: WMT) grocery distributor McLane. In May 2010, McLane in turn acquired liquor distributor Kahn Ventures. McLane serves an estimated 60,000 retail stores and restaurants, and food is about as recession resistant as a product can be. Amerisource’s business of distributing drugs is similarly stable. The company distributes branded and generic drugs to hospitals, retail pharmacies and physicians across the country. Capital needs are minimal as it doesn’t own inventory or need store fronts to sell its goods.

3. POSCO (NYSE: PKX)
Business: Steel & iron
Trailing P/E: 14

South Korean steel firm POSCO is perhaps a bit large, with a total enterprise value of more than $36 billion, but it is still a potential future acquisition target. First off and most importantly, Buffett already holds a stake in POSCO. As of year-end 2010, Berkshire held just under 4 million shares for a total market value of $1.7 billion.

POSCO is one of the leading steel firms in Asia and counts South Korea and China as core markets where it is fast at work at helping the region build out its infrastructure of buildings, roads and airports to support those countries’ rapidly growing economies. Profits have grown 10% more than the past decade.

Another important point is that Buffett is currently in Asia ferreting out potential acquisitions. He cancelled a trip to Japan but has reportedly visited South Korea and India.

POSCO trades at a reasonable trailing P/E, given sales and earnings have grown 10% annually in the past decade and expectations are that China will continue to need international sources of steel as domestic supply is projected to fall well below total demand for many years to come.  This suggests continued double-digit profit growth, and Posco is already Buffett’s largest holding in Asia.  This speaks to his confidence in its market position in Asia and he could at the very least add to his position, or even eventually fully acquire the company.

Action to Take —> Historically, Buffett’s acquisitions have been few and far between. His recent purchase of Lubrizol and more recent public pronouncement to find more deals suggests he finds the current global economic environment on solid ground and readying a significant recovery from the credit crisis.

The three firms above fit his acquisition criteria, and even without a buyout from Berkshire Hathaway, have plenty of investment appeal as standalone companies because of their industry leadership positions, reasonable valuations and compelling growth prospects.