Buffetts Latest Move!

Warren Buffett's Berkshire Hathaway Inc subsidiary International Dairy Queen, the ice cream retailer is planning in 2010 to open its first stores in Egypt and Macau. Berkshire bought Dairy Queen in 1998. Buffett frequently snacks on DQ desserts followed by an ice cold Cherry Coke. Coca Cola (KO) is Buffetts largest publicly traded equity posistion.

A Smaller Version of Berkshire Hathaway: Markel Corporation

Markel Corporation markets and underwrites specialty insurance and have been doing business since 1930. They are not a big well known company except in the value investing community. This might be due to them being in a rather boring industry- insurance. Wall Street seems to push everything in vogue and the retail investor seems to follow along. Berkshire Hathaway was not well known either 25-30 years ago, and Warren Buffett had already been involved with Berkshire for nearly 20 years. I must admit when I first heard of Berkshire back in the mid 1980's it was trading around 1500 a share. The only reason I noticed it, was that it had a high price tag or so I thought at the time. Hear it is almost twenty-five years later and another high priced insurance stock has got my attention. Well actually I've known about this one for a few years now. Did I say high priced at $342.00 dollars a share. Well for some of you new folks the stock price does not have anything to do with true value of the company. The reason why you see Berkshire Hathaway(BRKA,BRKB)and Markel(MKL)trading so high is because they don't split the stock, like most companies often do.

As stated in the title Markel Corporation is a smaller version of a Berkshire Hathaway. It operates in the same fashion as well. That is it's primary busi

ness is insurance. Most insurance companies have whats called float. Float is the money taken in (insurance premium) less the claims paid out. The difference or "float" is reinvested in fixed income and equities. Of course we all know that Buffett has been a master of this...taking the float and buying well known financially strong companies such as Coca Cola(KO), Johnson & Johnson(JNJ), Proctor & Gamble(PG), Wells Fargo(WFC) and Kraft Foods(KFT). Markel has also done quite well over the last twenty years by doing the same thing. Since August of 1990 Markel has risen over 2100% while Berkshire has risen over 1500%. Currently Markel is trading at $MKL a share. They have over 132 million per share in cash and a debt/equity ratio .34. Markel has over 70 companies in its portfolio with Berkshire Hathaway(BRKA, BRKB), United Parcel Service(UPS), Diageo(DEO), and Carmax(KMX) being some of the larger holdings.

What others are saying about Markel: 5 Star Stocks Begging To Be Bought

Author currently long as of this writing BRKB,WFC,JNJ,MKL,KFT,KMX

4 Of Warren Buffett's Smaller Holdings

Four of Warren Buffett's smaller holdings have made some big gains off the bottom, along with the overall market. What's interesting is that most focus on his largest holdings which are Coca Cola $KO, Wells Fargo $WFC, American Express $AXP, Burlington Northern $BNI, Johnson & Johnson $JNJ, Procter & Gamble $PG, and Kraft Foods $KFT. Below in the graph's you see 4 smaller positions that Berkshire Hathaway owns. Three of these companies IR, NRG & KMX have gained 100% or better off their lows, while ETN has gained 76%, all four far out pacing the market averages, with the Dow Jones Industrial returning 44% and the S&P returning 50%.

Looking at some of his smaller holdings might give us a glimpse at what he is buying in his personal account which is not published anywhere. All-in-all Buffett owns over 90 different companies in which over half of these are wholly owned by Berkshire Hathaway $BRKA, $BRKB.

Ignore The Headlines And Concentrate On Value Part II

As I said in my previous post concentrate on the fundamentals. We as investors are constantly bombarded with news via 24 hour news channels, the news paper and now that Ultra 24 hour news channel The Internet. Hey information is great and now we can receive more of it and at a faster speed than ever. As an astute investor one needs to turn off the hype and noise and concentrate on those fundamentals. I mentioned earlier terms such as book value and free cash flow, well their are other important things to look at when buying into a business. For example One of the most important profitability metrics is return on equity [or ROE for short]. Return on equity reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet. If you think back to lesson three, you will remember that shareholder equity is equal to total assets minus total liabilities. It’s what the shareholders “own”. Shareholder equity is a creation of accounting that represents the assets created by the retained earnings of the business and the paid-in capital of the owners.

A business that has a high return on equity is more likely to be one that is capable of generating cash internally. For the most part, the higher a company’s return on equity compared to its industry, the better. This should be obvious to even the less-than-astute investor If you owned a business that had a net worth [shareholder’s equity] of $100 million dollars and it made $5 million in profit, it would be earning 5% on your equity [$5 / $100 = .05, or 5%]. The higher you can get the “return” on your equity, in this case 5%, the better.

Some businesses that cosistantly have high returns on equity are Philip Morris International $PM w/59% ROE, Johnson & Johnson $JNJ w/30% ROE, and Coca Cola $KO w/28% ROE.

Return On Equity is another investment metric used by many famed Value Investors such as Warren Buffett, Bruce Berkowitz, Mohnish Pabrai and many other notabe investors.

The Banking Landscape Is Under Change

The American Banking landscape is under change. As the financial crisis heated up in 2008 we saw many companies loose billions of dollars and some even go under such as the largest bank failure in U.S. history, the  Washington Mutual Savings Bank. Shall we call it the changing of the guard or the survival of the fittest? It doesn't really matter, for history will decide for us. Today there is a gloomy outlook for the financial industry and the economy, but one thing is for sure the change goes on. With Bank of America (BAC) purchasing the storied Wall Street Brokerage house of Merrill Lynch and Wells Fargo's (WFC) purchase of an old southern regional powerhouse of Wachovia Bank, both will take on bigger rolls. Bank of America will be a much bigger player in the brokerage business as well as a major player in the mortgage business with its purchase of the largest independent mortgage company, Countrywide Financial. Wells Fargo will have an east coast presence now that it owns Wachovia with its many branches throughout the south east. Wells to will even be bigger  in its real estate mortgage business. Then there is PNC Financial (PNC) which was a north eastern regional but suddenly jumped into a new roll as a money center bank with its recent acquisition  of  National City Bank. This gives PNC a larger east coast exposure which will include the the state of Florida who has a huge retirement community. Then their is Bank Branch & Trust (BBT) another North Carolinian bank that has managed to stay out of trouble with its more "Plain Vanilla " bank lending, which it turns out boring can be better after all. We also have another one of Warren Buffett's stocks U.S. Bank (USB) which also has had higher lending standards than some of its competitors. Suntrust has also remained in the mix but paying some what of a price,  by selling some of its Coca Cola (KO) stock, which it has owned since 1919. We can not forget Goldman Sachs(GS) and Morgan Stanley(MS)that were brokerage businesses that have now converted over to chartered banks to escape going under. Citigroup (C) who was once the largest bank might take on a smaller role in the changing of the guard, while JP MorganChases  purchase of Washington Mutual's assets will give them a much larger retail client base.

Where they stand now:

                                        Quote     Yield      PE   MktCap  Revenue           

                                           

Bank of America          14.04      9.07       12          70b       87,304b

Branch Bank & Trust  26.66      7.03        9           15b          7894b

Citigroup                       6.96      9.14          -           38b     124,467b

Goldman  Sachs           83.70       2.22      18          33b       53,579b 

JP Morgan Chase        30.71      4.94       15         115b      71,387b

Morgan Stanley           16.44      6.49       14          17b       61,883b

PNC Financial              47.87       5.50       13          17b          6166b

Suntrust                       29.83      7.21         9           11b      10,035b

US Bancorp                  24.57       6.91      12          43b       13,136b

Wells Fargo                   29.65      4.59       15          99b       35,177b

5 Defensive Plays

Here are 5 stocks for uncertain times. Each company pays a dividend, has a PE ratio of 18 or less, a high return on equity, and debt/equity ratio of .52 or less. Four out of five companies have been in business for over 100 years.

P/E ROE Div% D/E ratio

Costco(COST) 18 14 1.2 0.25

Hormel(HRL) 14 16 2.3 0.21

Johnson&Johnson(JNJ) 13 26 3.3 0.30

Coca Cola(KO) 16 27 3.7 0.48

Proctor & Gamble(PG) 16 17 2.7 0.52

* prices as of 10/10/2008

Costco is a Big Box discounter that sells everything from, snack foods to home furnishings.
Hormel Foods sells meat products under various brand names such as SPAM, Dinty Moore, and Valley Fresh. Everyone knows Coke with its bright red cans and funny shaped bottles which serves up brands such as COKE, FANTA, and SPRITE. Proctor & Gamble is in the personal products industry and owns brand names such as Head & Shoulders, Cover Girl, and Gillette. While Johnson & Johnson has TYLENOL, BAND-AID, LISTERINE.


The author suggest further research before investing. The author does not hold positions in any of these companies except JNJ.

STOCKMANMARC