James,
I understand that you guys are not bashing my
ideas. I guess we all are just driving the point
that qualitative and quantitative analysis is
very important in Buffettology. Lots of people don't
get that... :-(
I agree with your "quick check" use of the
spreadsheet. Do you also use it to decide
to buy one stock vs. another? Though, from what I
remember, you have mostly Graham value stocks and not
Buffett.
PEP.
> They're a borderline investment now under the Buffett
> criteria, but if they spin off their bottling like Coke
> then ROE will go up. I'm with you on that.
OK.
> BUT, it will not be worth any more unless your
> financial case
> goes much further than that.
> Because return on equity will go up a lot,
> BUT THE DENOMINATOR (the "E" -
> equity) WILL DROP A LOT AT THE SAME TIME.
> What that spinoff would be is
> getting rid of a lot of equity with low earnings power
> attached to that equity. The ROE will rise, but how much
> "E" to have "R" on will be left? That's what you've got
> to be thinking about.
That's a tough question, and I am not sure
I want to spend sleepless nights figuring that one out.
OK, in the best case PEP unloads a mountain of debt
on the bottler, as they did with YUM. Mike researched
YUM, so he should know the pattern. Then they lose
equity, but they gain some of it back because they lose
debt too. Anyway, I agree with you that the situation
is complicated and returns may be marginal. I hold
my position but may redeploy it if something much
better comes up. I need more time to finish my research
on some newer ideas.
And BTW, I'm just an idea guy. Crunching through
financials, and figuring out complex balance sheets
is not my type of thing. You and Mike are much better on
that.
>Another fascinating thing I find about this Coke-Pepsi
> debate is that many investors buying Pespi for the
> bottling spinoff story passionately believe
> that Coke is overvalued. They can't have it both ways.
Not me. The only story that can be told
about PEP is that it's relatively undervalued in comparison
to KO, so in the future it should go up to KO's valuations.
It's as likely that KO will go down to PEP's valuations,
so there's not much absolute value. And from the
Buffett model KO is much better value than PEP.
Good luck
Jurgis |
