I just read Berkshire's 1996 annual report. This was the first I
heard about Buffett's big trip to McDonald's. I guess rumors had
been circling - last week's Barron's claims that he "continues
to tout the stock". I missed all this. But anyway, it was like
"Of Course!!". McDonald's seems like exactly Buffett's style.
Great brand, dominant, expanding internationally...and top notch
numbers - ROE, margins, etc. And to top it off, people have been
bad-mouthing the stock ever since the Arch Deluxe fiasco.
I immediately looked up it's Value Line sheet, crunched the numbers
in the usual way (I have a spreadsheet template) and expected to
see a screaming buy (still).
Well anyways, I was quite disappointed. I certainly wouldn't
describe MCD as cheap - although Value Line's numbers for 1996
were still just estimates. Unless there was a BIG change from
expectations...And this is in a year with lighter than usual
cap. expenditures. Smoothing those out makes the valuation even
lower. And the stock hasn't changed much over the past year or so,
so Buffett had an even worse set of numbers in front of him!
It's a great company, but I say it's no slam dunk above $25 or
even $20 (long term, of course). IMHO, at those prices you'd have
the kind of margin of safety of his earlier purchases.
Is he loosening his standards?? That seems unlikely...so why can't
I reconcile this purchase with the valuation technique he claims
to use?? Ideas anyone? Also I'd appreciate it if anyone can point
me to some quotes. He's alledgedly "touting" this stock, and I'd
really like to hear his rationale.
Signed,
Confused in Canada :-)
P.S. Thanks for the phone # Lars... |
