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

To: Carl Worth who wrote (23973)	5/20/2006 4:24:07 PM
From: Dale Baker	Respond to of 78753

it's great to pay a low multiple of sales, earnings, book, etc., but the main thing that drives the price of a company's stock higher is the growth of their revenues and earnings, so leaving growth out of the equation would seem to be a huge disadvantage in analysis Isn't that basically what Munger taught Buffet? And it ain't so easy to teach Warren much..... Buffett's holding company, Berkshire Hathaway (BRKA:NYSE - commentary - research - Cramer's Take), revealed a 17.9 million-share stake in ConocoPhillips (COP:NYSE - commentary - research - Cramer's Take) in its quarterly regulatory filing on Monday. The investment comes from the world's preeminent value investor, even after shares of the oil company have rocketed 13% so far this year, after adding a whopping 52% last year. "I doubt that [Buffett] thinks ConocoPhillips is a screamingly cheap company," says Glenn Tongue, managing partner with T2 Partners. "He probably thinks it's a predictable asset-rich company that will grow in value far in excess of what his costs of financing are. That rationale goes along with some of Berkshire's previous investments like Wal-Mart (WMT:NYSE - commentary - research - Cramer's Take) and Wells Fargo (WFC:NYSE - commentary - research - Cramer's Take)."

To: Carl Worth who wrote (23973)	5/20/2006 6:02:17 PM
From: Paul Senior	Read Replies (1) \| Respond to of 78753

The issue for investors about HD and LOW as regards growth, is: who is predicting what those growth rates are and what is his/her record for predictions? (or their records - plural - if you're using consensus estimates.) I'll give anybody the point that using financial records is using historical stuff, and the way I often use them (current numbers compared to past) is subject to too much rear-view mirror investing. OTOH, extrapolating growth rates five years out has its problems too. Buffett may pay up for growth, but I don't see where he quantifies it. (Perhaps he has or does though.) Having a moat which will deliver "enough" growth with "enough" assurance is perhaps good enough for him. Perhaps he actually might like LOW better than HD because LOW has greater growth potential (if it really does), but he is trapped into his HD position because of Mr. Munger's involvement with HD. Perhaps either company has good enough growth at current p/e, etc. to be worth a buy. Perhaps if homebuilders drop more, housing prices fall, and economy heads to recession then neither company is a buy now. Somewhere in here is another issue for investors regarding growth. It is the always-to-be-asked question: "How long are you in for?" Perhaps HD and LOW will both do okay vis-a-vis the market or other large-caps if one buys now and holds for five or more years.

To: Carl Worth who wrote (23973)	5/20/2006 9:46:54 PM
From: E_K_S	Read Replies (1) \| Respond to of 78753

Hi Carl - There are two specific reasons I have bought into Home Depot. Their (1) real estate holdings and (2) their new revenue streams from their service businesses. I have not done the equivalent analysis for LOW but I believe there are more hidden low cost assets available in HD. The following is a dated article from 2003 but is still relevant for my HD analysis. buildings.com Notice the ranking of the real estate holdings for the companies listed. Look at those companies that have (1) deleveraged their assets (i.e. JC Penny selling their drug division), (2) have been bought out or merged w/ other companies (Sears merger w/ K-Mart) and (3) have been sold or split into pieces (ABS real estate sold and prime assets merged w/ SuperValue). Other than Walmart, Home Depot is the only company on the list that is still growing their businesses, adding new sources of revenue streams through retail and wholesale services and have invested billions of dollars acquiring vertical business enterprises that make their entire operation more efficient. Low's growth comes from expanding stores and increasing their same store sales. HD's management stated that their business model going forward will not have ever increasing same store sales but expect new stores to be marginally more profitable but combined w/ older stores their growth rate s/b in the low teens. HD's business plan is to make their operations more efficient and generate a better operating margin for all sales. New revenue streams are also being added through Services (which includes carpet care, installation of flooring, furnace, roof, kitchen & bath remodeling etc.). From a conference call last week, HD should generate 10% of their revenues from these new services (it's growing from less than 1% a few years back). As a value investor, the biggest hidden asset is in their real estate that HD has acquired over the last 30 years. It's similar to Sears but twenty years later. HD has also been integrating their efficient distribution system with their Internet offering. You can order specialty items and have them delivered to your nearest HD store location at no additional shipping fee to the customer. I had a Cherry door manufactured in Costa Rica and shipped to my local Home Depot at wholesale w/ no additional shipping fee. All the other quotes I obtained were 20% higher in price plus charged a $300 shipping fee. My point is that both LOW and HD are very efficient "retail/wholesale" distribution companies and with their buying power (and HD's vertically owned companies) can beat any U.S. manufacturer on customer service and price. This competitive advantage is not reflective in either the PEG, PE or P/S ratio. Therefore, I believe both companies are probably good investments but I like HD better for the reasons stated above. EKS