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

To: Shane M who wrote (475)	10/22/1998 5:40:00 PM
From: James Clarke	Read Replies (1) \| Respond to of 4690

Like I said, I am not going to mess around with valuing Microsoft when everybody in the world loves it. My signal is psychology on a stock like that. But if you really want to look at it on an ROE basis, back out the cash on the balance sheet and you will find that the business has virtually no book value. What do you do with that? Waiting for stocks to be way out of favor means is I am going to miss the $53 bottoms on Coke, if that really is the bottom. I like to buy only what is out of favor, and one can hardly call Microsoft or virtually any high ROE consumer products company out of favor right now. As for Safeway, be real careful with ROE on this one because equity was very distorted by the LBO around 1990. When it came public again, the company had negative equity. For companies like that it is really tricky to calculate what their reinvestment rate actually is, especially when the reinvestment has been funded by issuing shares of stock. There's just too much going on there. Jim

To: Shane M who wrote (475)	10/28/1998 7:19:00 PM
From: Harry Landsiedel	Read Replies (2) \| Respond to of 4690

shane milburn. Re: Safeway. Grocery stores are interesting stocks but given the low margins and intense competition, there is not much of a "moat" around most of them. Unlike newspapers, where there is now usually only one per market or television networks where there used to be only three (when Buffett owned Cap Cities), supermarkets don't usually have quasi-monopoly characteristics that Buffet favors. Safeway in particularly is unappealing to me partly 'cause of its history. In the 80's it was the laughingstock of the industry, a poorly run company spread too thin across too much geography. The new management has changed a lot of that, but be careful projecting from the past, 'cause it was so dismal. Two companies I like better are Albertsons and Dollar General. Look at their margins versus the industry and their return on assets along with ROE. I've owned Albertsons since 1987. It's an 8 bagger. Many of Albertsons stores are in smaller western markets where there are only one or two stores per town. Also ABS's recent merger with American will produce very large savings and lower prices from suppliers, which is not entirely factored in current earnings estimates. DG is interesting in that its small stores are designed to slip under Wal-Mart's radar and is a small cap with lots of room to grow. Neither are "perfect" Buffet stocks, 'though DG is down some 45% from it's 52 week high, which makes it a fairly good buy. Hope you find this helpful. HL