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

To: Stewart Whitman who wrote (582)	11/22/1998 1:18:00 AM
From: James Clarke	Read Replies (1) \| Respond to of 4691

I agree with your assessment. I am skeptical about the battery business as well, but it was good enough to attract Gillette. But anybody who has a cat can tell you that the pet food business is as good a franchise as almost any business out there. Importantly, over the last couple years, RAL has systematically stripped out businesses which have poor characteristics. What is left is the best franchises.

To: Stewart Whitman who wrote (582)	11/22/1998 5:30:00 PM
From: Shane M	Respond to of 4691

Stewart, On RAL. First, I'd like to pay a little less for it, probably would buy a little if it got back down around 30, and would fill out a position in the high twenties. I like the strong growth in book value of this stock, and the high ROEs exhibited based on continuing earnings (in most recent year you need to exclude a sale of assets that messes up PE and ROE calcs). 12mm ROE on continuing earnings is around 25%, and historicals have been even higher. If you look at the historicals, RAL has been growing book value while sales growth has been stagnant to negative for the most part. This is attributed to strong free cashflow. They don't need to reinvest much to keep turning in excellent results, which makes the quality of the earnings better IMO. I think the "Energizer" brand will be hard to knock off (no Duracell pun intended), even if it is a slow grower. They also make many of the off-brand store batteries too. Ologopolistic market structures (only a few large competitors) like batteries can produce outsized returns provided the companies agree to not compete based on price, and Gillette and RAL I think understand this game. Their position in pet foods is superior, and they recently added to it with an acquisition. As long as they can make good acquisitions with their cashflow - acquisitions that can produce high ROE - we should see shareholder value continue to increase. This is the attraction I have to RAL: Growth in book value, high ROE, and strong free cashflow. The revenue growth is not the key in my mind. It's their ability to keep generating cash with which to acquire other high ROE companies/brands. This is my opinion on this stock. I'm still learning the stockpicking game, and tend to modify my strategies every 6 months or so... But to me RAL stands out as one of the better Buffettology investment opportunities out there if it can be had under $30. It was there not long ago but I didn't pull the trigger, afraid the international situation would hit them negatively as it had some of the other consumer companies. Instead RAL beats earnings estimates last quarter and runs up about 25%. Shane