– One of the all-time greatest investors talks investing and “sub-prime” (video)
– A cheap way to get out of your cell phone contract
– You know what? as much as I like their product, this makes sense
– What stocks does Buffett own that are buying back shares?
Altria (MO) has this way of giving you what you want and then leaving you panting for even more.
On Aug. 25th I posted “The litigation environment surrounding tobacco has not been this good in almost 20 years. Altria (MO) will take advantage of this to announce the PMI spin at the upcoming board meeting Aug. 29th.”
Altria obliged and gave me the spin I wanted to stopped short of announcing the huge dividend increases and share buybacks I also wanted. They did announce an almost 9% dividend increase to 75 cents a share and made no mention of share repurchases. Altria stopped buying its shares in 2003 after it lost access to the commercial-paper market following a $10 billion ruling in a class-action smokers’ suit in Illinois that limited its financial flexibility. A final decision on the timing of the spin will be announced at a board meeting Jan. 30, Altria said in a statement.
A spin would finally complete the breakup of the former Philip Morris Cos., which traces their roots back to a London tobacconist in 1847, and leave it only with the U.S. cigarette operations. Altria’s cigarette ties stretch back 160 years, when Philip Morris opened a tobacco shop in London. Philip Morris & Co. was incorporated in New York in 1902 and introduced the Marlboro brand in the U.S. the mid-1920s.
The US unit, which accounts for one of every two cigarettes sold in the US, is dwarfed by Philip Morris International (PMI). The overseas division accounts for two-thirds of profit and three-fourths of revenue, and its shipments are rising.
Thomas Russo, a partner at Gardner Russo & Gardner in Lancaster, Pennsylvania said “Ultimately it is the right move”. He also expects the international and U.S. companies to initiate a “generous share buyback program and pay a substantial dividend.”
Louis Camilleri, 52, will take over as chairman and CEO of Lausanne, Switzerland-based Philip Morris International. Michael Szymanczyk chief of Philip Morris USA, will become Altria’s chairman and CEO. Said Cammilleri, “I have seen no credible argument for keeping the segments together”
A separation of the two units will allow for savings of at least $250 million, including the closure of Altria’s New York headquarters. Almost 2/3’s of Altria’s 600 New York jobs will be cut and some employees will be offered transfers to the Richmond, Virginia, headquarters of Philip Morris USA.
The international unit, which has the biggest share of smokers in Italy, Germany, France and Spain, may accelerate acquisitions and resume share buybacks once operating independently, Bonnie Herzog, a Citigroup Inc. analyst in New York, wrote in a note Aug. 26. Altria spent more than $5 billion on acquisitions in Indonesia and Colombia in 2005 to spur growth in emerging markets.
So, that is that backround. Now we need to know what to do going forward. This is easy, nothing. Nothing.
Take your shares in the spin, keep them and keep your PMUSA shares. Altria has been quite possibly the most shareholder friendly company in the history of the US markets, no reason to expect that to change. Cigarette’s, no matter what you want to say about them are a great investment. As Berkshire’s (BRK.A) Warren Buffett once said, (I am paraphrasing) “you make a legal product for pennies and sell it to addicts for dollars, a great business.”
You will be getting shares in what is a US backed government monopoly thanks to the Master Settlement that will pay a huge dividend and will buy back shares by the truckload. In PMI, you will get shares in a fast growing business that throws of huge amount of cash for both acquisitions and a nice big dividend. How much of a dividend? $30 billion in leverage puts PMUSA at 1.8 times debt/EBITDA, a common industrial level and PMI at 2 times. A 75% dividend pay-out on PMUSA earnings would drive a yield of 5.4% if it traded at 14x P/E on 2008 forecasts. PMI would trade on a yield of 4.6%.
What’s not to like?
– Now we can bet on the performance of a 16 yr. old NFL coach
– Who’s investments are beating Warren Buffett this year?
– Speaking of Buffett, here are some notes from his alter ego’s shareholder meeting
– In yet another Buffett induced link, here is the transcript from the fund that beat Buffett for a number of years
– A different yet accurate take on my hesitation with Harley Davidson (HOG)shares
Here they are 1-5, it is a Buffett buffet………..
1- Risk Arbitrage/ Special Situations Look Attractive
3- Gannon On Investing: On Berkshire Hathaway’s Holdings
4- Warren Buffett Buys Bank Of America Corp., Dow Jones & Co., Adds to US Bancorp, Sells H&R Block
– Thank you to Andrew Ross Sorkin and his excellent Dealbook column at The New York Times for a mention yesterday. I had wanted to email Mr. Sorkin to thank him personally but could not find an address. Does anyone know it so I can get in touch? You may email it to me a valueplays@gmail.com
– If you do not believe me that this is a great buying opportunity, listen to one of the all time greats
– For those about to rock, we salute you
– I love playing in these store but have never bought anything in them
– A calming voice in irrational times
– Good. He should get more time for being so magnificently moronic aside from the abhorrent behavior
There was a ton of gnashing teeth and sweaty palms after Bernanke refused to lower the Fed Funds rate last week. It would seem he once again made the perfect play.
Rather than cave to the market suffering from a self induced wound, Ben lowered the discount rate for lenders. This allowed those who did not point the gun at themselves when they pulled the trigger to do what was necessary to provide the necessary liquidity. Today Citigroup (C), Bank of America (BAC), Wachovia (WAC), JP Morgan Chase (JPM) took advantage of the lower rate to take over $2 billion from the Fed. This provided credit in tightening markets and did exactly what Ben wanted, it let the market restore order to the system and did not eliminate the necessary suffering of those who had it coming.
Now news comes out last night that Bank of America has invested $2 billion in a convertible preferred security with Countrywide (CFC). This is identical to the situation I spoke of when I said the only way Warren Buffett would get involved with this would be in a “private transaction they issue Buffett debt or preferred convertibles to provide a specific lender with necessary liquidity.” It wasn’t Buffett who made the investment but the instrument was the same. It was really the only way it could have been done and not caused a run in the stock. The preferred let’s Bank of America buy common shares at $18 which is a nice immediate gain seeing as shares jumped to $26 after hours on the news. Not bad…
Tomorrow will be bullish for financials as the sentiment will go from panic to optimism. Thanks to Ben..
The real beauty here? He still has the rate cut card in his pocket should the economy begin to deteriorate.
It is Buffett rumor time again. Every he did a CNBC interview and said that “opportunities would arise” from the current state of affairs, pundits have been having Berkshire Hathaway (BRK.A)_buying every mortgage lender out there. Ignore them
Why? Can anyone name the last time Buffett bought shares in a company on the open markets when people thought he would? Me either. Shares of Countrywide (CFC)jumped 10% yesterday when the Wall St. Journal simply opined that he may be a buyer or parts of the company. No facts, just an opinion. How large would the premium be for Buffett if word got out he was actually buying the company or made an offer for it? That fact alone eliminates an open market purchase of the lender.
What is likely? Buffett will probably buy dirt cheap mortgage backed securities he deems risk advantaged. What I would expect to be announced would be Buffett taking a multi billion dollar bet on mortgages perhaps in a private transaction they issue Buffett debt or preferred convertibles to provide a specific lender with necessary liquidity. During the Enron induced energy company meltdown at the turn of the century, Buffet made bets with convertible securities that turned out to be very profitable investments.
I just cannot imagine Buffett making any open market purchase. I would be very surprised on the other hand if he was not somehow involved in the cleaning up of this mess.
Here are links to items of interest…
– Every wonder where the person calling you on your cell phone is? Blackberry users will know soon enough.
– Thank you to the WSJ Online for quoting me last week
– Whitney Tilson, whose reasoning I just love has a great article about the current market conditions
– Last week I wrote about Warren Buffett’s comments on lenders and their current situation. Here is the video of those comments
– Is it just me or is it embarrassingly early to be selling refurbished iPhones?
If you are like me and have 20 or more years before you plan on touching your investments, times like this make you giddy.
The DOW is back down to 12,500 and now at levels seen since April and another day or two of this will give us levels back to November 2006. Why then is this great?
1- The economy is still strong and growing. Profits are still rising at a double digit rate and unemployment is at historically low levels. GDP for Q2 will be revised up and there is no recession on the horizon.
2- Cash rich companies are buying back shares in unprecedented numbers.
3- Over 50% of S&P 500 companies profits come from overseas where economies are surging.
What does it mean? The underlying fundamentals are strong which means eventually share prices are going to turn around. What we have is a credit problem and when traders cannot sell off this debt, they sell what they can which is shares companies like in Goldman Sachs (GS), Dow Chemical (DOW) and Altria (MO). I mean, if we look at it logically are the events of the last month going to stop people from smoking OR will it effect Altria’s balance sheet which is laughingly unlevered? No.
So, are my picks down? Yup, so what?!? Paper losses mean nothing to me, purchase prices do at this point in my investing career. Market disturbances like this that cause mis-pricing of equities like we see now are great for me. What I am busy doing now is lowering my cost basis for recent purchases like Goldman, Wal-Mart (WMT) and Citigroup (C). The last time I could have bought shares of Goldman and Dow Chemical at these levels was Sept. 2006, Citigroup , February of 2006 and you have to go back to March of 2006 to buy Sears Holdings (SHLD) at these prices. The sale price if Sears now is so low that Chairman Eddie Lampert is tripping over himself to buyback shares. He has bought as many shares back in the last month as he had almost the entire last year!
In short, the world is not coming to an end and the economy is still very strong. Keep buying…
You know, if Buffett and Lampert are buying more shares every quarter, why aren’t you?
“If lenders lent money that they are not going to get paid back, that’s their problem, frankly”, said Berkshire Hathaway’s (BRK.A)Warren Buffett yesterday. Finally, somebody gets it and is not calling for the Fed to bail lenders out.
Last week I said “The Fed will not bail out lenders that made dumb loans and now are in trouble. Bernanke is going to let the market work (as he should) and it is already taking care of things. Bad credit is harder to get, and hopefully credit standards return to what they should be. Both of these are good things long term.”
Back in March I posted abut the loose lending practices that have gotten lender in the mess they are in today. In it I detailed the “No Documentation” loan types that had proliferated the past few years and said:
“What is shocking is the justifications they give for those who these loans “may be right for”. You are buying a house, you are borrowing money from a bank to do so. The expectation is that you will need to have money to put down on it and actually be able to demonstrate an ability to pay the bank back. The phrase “take my word for it” should never enter the conversation. It did though and that is the genesis of the current situation. When buying a $500,000 house involved less paperwork than buying a Ford Escort, red flags ought to have been going up.
In 2005 and 2006 the number of both mortgage brokers and real estate agents hit historic highs. A mortgage is a commodity, give me a price and a rate and I will choose a broker. There is very little a broker can do to distinguish themselves from each other. With so many brokers and a limited number of qualified mortgage applicants, brokers had to find new applicants. The only place for them to go was the pool of people who under the current rules not only did not qualify for a mortgage would not receive credit from a bookie were they to ask. The new motto was “If they don’t fit under the current set of rules, change the rules”. So they did. What they failed to realize was, the rules were there for a reason, they worked. We are now realizing that people who do not want to provide proof of what they do for a living, how they earn income, what that income actually is or where their down payment is coming from are not doing so out of some symbolic “privacy concern”, but because what they are saying is quite frankly, bull. Who has trouble “verifying income”? Crack dealers? Illegal immigrants working under the table and not paying taxes? Contractors who cheat on their taxes? If you want my money, prove you can pay it back or take a walk and let the next person in line step up, unless of course the line is small, the others are just like you and we really need to give you the money… thus the mortgage industry dilemma the past few years. Like I have said more than a few times before, the surprise here is not that this happened, it is that it did not happen sooner.”
Maybe additional calmer heads will come out and stop calling on the Fed to bail out idiots and drown out the Jim Cramers of the world who are running around screeching like an 18 year old girl who got ketchup on their prom dress. Yes things may get worse but as Buffett also said yesterday “there will be real opportunities then”…
Translation? Get ready to buy
Sears Holdings (SHLD)chairman Eddie Lampert was a busy buyer last month Sears said it spent $800 million in the last month buying back stock and said its board approved an additional $1.5 billion repurchase plan. The company bought back $1.5 billion in stock during the second quarter at an average price of $153.
A $3 billion total buyback, big deal. Well, it is really. $3 billion represent 15% of Sears Holdings current market cap and that is a very big deal. Also, unlike the massive buyback announced at Home Depot (HD), Sears can accomplish it’s plans with the cash it has sitting in the bank. There will be no need to tap currently the restrictive equity markets for cash. We can be as certain as we can be that these shares will be repurchased. Based on Lampert’s history, it will be sooner rather than later.
Retail is hurting currently and Sears share price is suffering. But, ever the value investor, Lampert is taking Buffett’s advice and “buying fear”. Eventually thing will turn around and Lampert is using this weakness to buy shares at a discount.
It is important to note that last fall and winter when shares were in the $180’s Lampert sat on his hands and did not repurchase shares. Now that prices have dropped, he is jumping in big time.
Have patience shareholders.
Here are the most read posts for the month of July
1- Macy’s Into Sears Holdings?
2- Sears Holdings: If Lampert Is Buying more, Shouldn’t We?
The business editor of US News & World Report, James Pethokoukis sent me and email over the weekend alerting me to a special they put out on Berkshire Hathaway’s (BRK.A) Warren Buffett. It is entitled “Making Money The Buffett Way”.
Here are the table on contents:
1) The Ultimate Guide to Investing like Warren Buffett
2) Six Keys to Investing Like Buffett
3) From Nothing to $52 Billion: A Buffett Timeline
4) Berkshire After Buffett — Buy, Sell, Hold
5) Buffettesque Fund Managers
6) The Anti-Buffett
You can read all the pieces here.
It is a great introduction to Buffett and the time line piece is really neat. However, hard core Buffett devotees will not find anything new in the pieces but despite that, I think it is an excellent accumulation of Buffett information and well worth the read.
Here is one for those of you who like irony. The S&P 500 currently trades for 15.4 times future earnings according to a Bloomberg report. That means that on a earnings basis (and isn’t that what really counts?), the US market has not been this cheap in 16 years!!
I guess that explains why Berkshire Hathaway’s (BRK.A) Warren Buffett has been initiating and adding to positions left and right recently. Now, about the irony part?
1991- We had a Bush family member in the White House
1991- We had a housing “bust”
1991- We were in a war in Iraq
1991- In April 1991, the Dow Jones Industrials crossed 3,000 for the first time ever. In 2007, the Dow crossed 14,000 for the first time ever.
1991- A Clinton announces their intention to run for the White House.
1991- Dick Cheney served the President (Secretary of Defense)
1991- The S&P crossed 400 for the first time ever. The S&P hit a record 1555 in July of 2007
1991- Court bars Jack Kevorkian from assisting in suicides. 2007, Kevorkian released from prison
1991 -Exxon (XOM) agrees to pay $1 billion to clean up after Exxon Valdez spill. In May, 2007, Exxon said it will appeal to Supreme Court a $2.5 billion punitive damage award from the spill.
1991- Pete Metzelaars is in a Super Bowl as tight end for Buffalo Bills. In 2007. Metzelaar is a coach for the Indianapolis colts
The good news? The bargain prices investors paid in 1991 lead to barrels of profits over the next decade and stocks embarked on a historic steady climb. What is interesting is that even though stocks in 1991 were at “all time record highs” and there was a war going on, because they were cheap relative to their earnings, they proved to have plenty of room to run to the upside and they did just that.
I have said it here before many times, ign ore the “noise” out there and just focus on earnings, buy cheap stocks, and hold on to them. It is a winners game.
Since my initial post of Berkshires’ (BRK.A) WEB and the replies, there has been quite a bit of discussion on the topic out there. I will not specify any bloggers because I have no desire to have a virtual battle with anyone, but, as before, I invite anyone to refute me and I will be happy to post it here. The more diverse discussion the better, right? If any blogger wants to have public discourse about this, I am happy to do so, I just am not the type to blindside someone.
Here are the initial posts, here and here, read them so at least we are on the same page.
Recently the line of thinking out there is that due to Berkshire’s size and the various SEC regulations surrounding stock purchases, this prohibits large stakes in public companies at prices Buffett is willing to pay. It says that because Berkshire can only buy up to 1% of a companies daily volume without disclosing it is doing so, it cannot make purchases of a percentage to Berkshire size that it did in the past. Essentially, when you are a $100 million company investing 20% in a single stock is a whole lot easier than investing 20% of the approx. $50 billion Buffett sits on today. This is all very true, but, here is the rub: If we look at a few of the Berkshire purchases the last few years, this reasoning for Berkshire not buying more just does not hold water.
In order to continue we need to some to agreement on a few things:
1- Buffett only buys stocks he considers a value
2- He would not invest expecting only a “small return” on an equity. This is despite his public proclamations, this is called “under promising and over delivering”. He has been saying essentially the same things for the past two decades. Not buying it anymore.
WalMart (WMT)
Berkshire first announced a Walmart stake in 6/2005 and added to it in 9/2005 for a total of 34 millions shares at an average price of about $48 a share. The prevailing thinking out there now is that Buffett just could not buy more once the initial stake was announced because copy-cats poured into the stock and pushed the price above a level Buffett would be willing to pay. But WalMart has essentially traded at or below Buffett’s purchase prices since he bought shares! He could easily have made WalMart a substantial Berkshire holding. When you consider WalMart trades 13 million shares a day, Buffet could have bought about 760,000 shares a day.
Johnson & Johnson (JNJ)
In the spring and summer of 2006, Buffett bought 26 million shares of JNJ at $59 a share. He sat there for the next year as the stock price fluctuated around the almost $64 a share price he bought another 22 million shares at in the spring of 2007. Berkshire now owns 48 million JNJ shares that represent just under 3% of Berkshire’s assets. Could Berkshire have bought much more at prices it clearly was willing to pay in the past year and a half? Yes. JNJ trades almost 9 million shares a day and even with Buffett gobbling up 22 million more shares, the price of JNJ stock fell precipitously during the spring of 2007 from $67 to $60. This means that even with him purchasing just about the maximum number of shares in order to avoid public reporting, his activity did nothing to cause a “jump” in the stock price.
These are just two quick examples. Now there may be many reasons Buffett did not take bigger stakes. Since he has never said, we will never really know. What we do know, is that the common excuse “he just can’t do it because of SEC regulations and reporting requirements” just does not wash. Even Munger inexplicably jumped on this bandwagon recently when he claimed as much. Now, for some of the smaller companies Berkshire has taken stakes in this is entirely true but the above reasoning is being used to eliminate any conversation of why Berkshire stopped “swinging for the fences” almost decades ago. If you did deeper into purchases that past three years there are many examples of companies Berkshire took stakes in that the opportunity to take much larger stakes at or below the original purchase price was there (USB, for example), they just chose not to. It had nothing to do with the recently espoused reasons. Let’s not forget additionally that Buffett is one of the few folks out there that the SEC actually allows to delay reporting of purchases while he finish building his positions. Even without this grace period and even after his stake has been announced, a larger position in Budweiser (BUD) was available.
Warren “can” build Berkshire portfolio changing positions, he just “chooses” not to. That is ok, but let’s just admit that and let go of the excuses.