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April 2010

Recs

5

What Exactly Is An "Extended Period"?

April 30, 2010 – Comments (1)

I gotta admit I am again disappointed in the Fed for their most recent "rates will stay low for an extended period" shmeal.  I read in the paper where one analyst said that this was the key phrase and that if they did not actually say "extended period", then "all bets would be off" as he put it.  I dunno man, seems to me like they are just stoking the fire for another problem down the road.  Keeping these rates so low for so long is gonna be trouble.  Borrowing money is a bear right now, but there is still some of it being done and think for a second about this: with our rates so low obviously the fixed income market isn't exactly screaming right now, but there are a lot of borrowed dollars being plunked down into markets overseas and really inflating those valuations.  Brazil is a great example of a market that has come back really fast:  [more]

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4

The Dream Machine

April 29, 2010 – Comments (3) | RELATED TICKERS: PEP , WM

I love this thing...well the idea of it anyway:  [more]

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2

Best Buffett Buys

April 29, 2010 – Comments (0) | RELATED TICKERS: COST , LUV , BRK-B

This is worth a read I think:  [more]

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6

Here We Go!

April 27, 2010 – Comments (0)

It is an article so take it for what it is worth, but it is a valid concern:  [more]

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4

Buffett, Berkshire and Wal Mart

April 26, 2010 – Comments (3) | RELATED TICKERS: WMT , BRK-B

So hopefully by now everyone is aware that we have three of TMF’s finest (Philip, Joe and Andy) heading off to Omaha next week to participate in what is known to some as Woodstock for capitalists. Yes, I am talking about the annual Berkshire Hathaway meeting. Since I am going to be hanging back here at Fool HQ anxiously awaiting their dispatches, it seems like a perfect time to take a look at one of Berkshire’s key (and our Core) holdings: Wal Mart. Philip initially recommended Wal Mart in the May 2006 issue. So how is Wal Mart looking today? What qualities does Wal Mart possess that make it so attractive to Buffett? Did I leave the iron on?

Today Wal Mart is trading at just over $54 per share and the P/E is right around 14.5. Considering that over the last ten years the P/E has averaged more like 22, this could be seen as an excellent buying opportunity; I can see why Philip has it as one of our Best Buys Now. And how about WEB’s preferred metric of return on equity? Well, Wal Mart is returning on equity, and pretty consistently I must say. Over the last ten years, return on equity for the retail behemoth has averaged 21%. And what’s more, the difference between the highest and lowest measure over those ten years is only 3.1%, so it is not like they are putting up sporadic numbers; these are qualities we look for in the Core. Another point that Philip made in his original write up was that Wal Mart generates solid returns on capital and this is still the case with an average return on capital over the last ten years of almost 13.5%. As long as they can maintain that lovely low cost of capital, they should continue to create value for shareholders. While Philip’s valuation work is based on a DCF model and not multiples, the multiples can help shed some light on where the stock is trading in relation to our estimate of intrinsic value.

Let’s consider one final quality that Buffett looks for in a business. Is it simple to understand? Unless you have been hiding under a rock then you have heard of Wal Mart. And I would venture a guess that you have also been in one…more than once. Generally speaking, retail is a pretty easy business to understand. Wal Mart is just trying to sell stuff that people need at the lowest prices around. And with that mission in mind store count keeps growing and the expansion continues. Store count has grown significantly since the 2006 recommendation. According to the most recent 10K, as of January 31, 2010 total U.S. store count was 4,304 (including Sam’s Club). International operations are growing as well with the total store count now at 4,112 and this shows no sign of abating. It makes sense that Wal Mart holds a significant spot not only in Berkshire’s portfolio but Inside Value’s as well as both a Core holding and Best Buys Now.

Foolishly,

Jason
TMFJMo (long BRK/B)   [more]

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3

Short Homebuilders?

April 25, 2010 – Comments (3)

First and foremost I in fact have never shorted anything; the title is just to make a point.  Homebuilders have had a decent run of it lately for some reason.  But the fact of the matter is that new homes are more expensive, and there's a boatload of inventory to go before we get anywhere near back to normal.  Forget that they are slashing prices on new homes.  Consider the following:  [more]

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1

Rebirth of the American Technophile

April 25, 2010 – Comments (0) | RELATED TICKERS: AAPL , BBY , WMT

Actually now that I think about it, did he/she ever even really leave us?  I mean we are talking about folks that are OK with skipping out on a mortgage payment or two, even "strategically defaulting" but you're gonna have to pry that iPhone from their cold, dead hands.  Well, nevermind either way.  I am not trying to throw anyone under the bus here.  I just went to Best Buy yesterday to do my little part in building the momentum for the comeback of the century.  Truth be told I was pretty impressed with the traffic in the store.  There were a buncha folks looking at all sorts of stuff.  I needed a new laptop (hey don't judge...my old one was born in 2001 and couldn't keep up with today's technology.  I know!  2001!) and was happy to see some pretty good deals going still.  I read a good article the other day in TWSJ that was talking about how a lot of retailers have seen a solid bounce in stock prices over the past quarter, however Best Buy has lagged a little bit.  It seems that the main concern was over competition (specifically Wal Mart), but now that Target is going to carry the Kindle I guess they should be thrown in there as well.  The thinking going forward though is that Best Buy should start to see some real benefits from people trading up to bigger and better gadgets, so they are starting to price accordingly to attract traffic; big flat screens are a good example.  I don't know about you, but I am going to tend to buy most any tech items at Best Buy anyway.  The company expects to see a boost in margins from warranty/coverage purchases and installations as well with all of this expected upgrading.  Should be interesting to see.  I was also kind of surprised to see the services they offered (for a price of course) as a part of the laptop purchase experience.  I personally did not need or want any of this stuff (think set-up, back-up, configuration work, installation, etc.), but I guess I never really gave thought to the fact that there are plenty of folks out there who either need the help, or just want to save the time and have someone else do it for them.  [more]

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12

Double Trouble

April 24, 2010 – Comments (2)

It is reading articles like this one that make me think we are not even close to a recovery:  [more]

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3

Have a Coke

April 23, 2010 – Comments (0) | RELATED TICKERS: KO , BRK-B

One week and counting! It is not long now before we start getting reports from the ground in Omaha on what Warren and Charlie have to say about the state of affairs in our markets and what it may portend for the near-term. I for one cannot wait to hear what Philip, Joe and Andy have to say. I, your faithful analyst Jason, will be waiting here at Fool HQ to hear the news and I can tell you one thing: I will be drinking a Diet Coke (or maybe even a Cherry Zero if I’m feeling saucy) while I wait. And that leads me to my post here.

I have lived in Cairo, Egypt and Astana, Kazakhstan and one thing that has always amazed me (besides the heat in Egypt and cold in Kazakhstan) is the availability of Coca-Cola products all over the world. I mean we know it as the ubiquitous drink that is as American as apple pie here. But there can be no doubt that Coca-Cola qualifies as a global phenomenon. And I don’t know about you, but I can understand why someone might want to invest in such a thing. Look at the earnings they just announced. Coke’s profits climbed 19% thanks to emerging markets. That’s right folks, while we may have Coke down to a way of life here in the States, there is a whole world out there still growing the love. Examples: India’s case unit volume grew 29% and Turkey’s grew 18%. I mean those are significant numbers and Coke knows it. So what if earnings “missed analysts’ expectations.” We are not so short-sighted here at The Fool. They understand that their growth depends on that overseas investment. Considering that approximately 75% of the company’s revenue came from outside of North America this past quarter, I think it is safe to say that the pursuit of growth has officially gone overseas. The beauty of it is that even with market and commodity fluctuations here Stateside, sure the company’s stock will see its share of ups and downs. But there is a whole world of growth out there. And can you imagine a world (or at least a country) without Coke? I sure can’t. And what’s more is I don’t want to.

So is it this ubiquity that Buffett likes so much? Partly. I mean the guy talks about how Snickers bars are such a great investment because people will continue to want them and that recurring revenue stream is rather dependable. But even more, you gotta love Coke for the cash the company generates. In 2009 alone the company recorded more than $6 billion in owner earnings. That is money that goes toward growing the business (remember that emerging markets thing?) and other things like paying one heck of a consistent dividend. As a matter of fact, the company just announced its 48th consecutive annual dividend increase when it raised the quarterly dividend 7% from $0.41 to $0.44 per share. That is pretty steady-Eddy, especially when you take into consideration what we have been through over the last few years. It’s no wonder Coca-Cola holds such a warm spot in Buffett’s heart…and Berkshire’s (and our Core) portfolio.

Foolishly,

Jason
TMFJMo (long BRK/B)   [more]

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