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Strategies & Market Trends : Buffettology -- Ignore unavailable to you. Want to Upgrade?

To: jhg_in_kc who wrote (2624)	7/22/2000 12:27:08 AM
From: James Clarke	Respond to of 4690

The "Cisco of power suppliers" as you put it is not PWER, its Caterpillar. I bought a good deal of Caterpillar yesterday at about 37. You will find their conference call on their website CAT.com. Listen to it, particularly to the part about 10 minutes in where they highlight the growth in their standby power business. This is a new economy business, CAT is the unquestioned leader in it, and it makes up $1.8 BILLION of revenue, growing at 75% in the last two quarters. They expect sales of this product to triple to 20% of the company in the next five years. You can buy this company for about 12 times earnings, and unlike PWER you know its going to be there ten years from now. CAT is not going to triple in the next week, but I think I'm going to get $50 for this by April. That's a 37% gain from the current price, with limited downside and a 4% dividend yield. I think of CAT as a Buffett cyclical. If Mike can have his Buffett techs, I can have my Buffett cyclicals (though he'd probably buy neither). On another note, I was reading Washington Post's annual report and saw something very interesting that I hadn't seen before. As you know, Berkshire has been a big holder of Washington Post for nearly 30 years. (I think he paid 5 for it). In 1998 and 1999, for the first time, Washington Post bought shares of Berkshire. About $180 million worth. It looks like they were fixed on a price of about $2,000 on the B's. I would guess WPO management had some advice from a certain board member when they decided what price to pay for Berkshire, you think? If they were buying at 2000, I'll bet they were buying even more this year. This is a small part of WPO's balance sheet. But it is very significant in judging what Warren Buffett thinks is a good price for Berkshire. So now we have two data points. The $1500 level which Buffett stated in the last annual would represent a significant discount to intrinsic value, and the $2000 level at which Washington Post bought shares, presumably on Warren's counsel. That doesn't mean he thinks its worth 2000, that means he thinks that represents a margin of safety to intrinsic value. My average cost is somewhere in between those two figures.