There aren’t really any good times to buy Colgate-Palmolive at fire-sale prices. The reason? Everyone knows what a great company it is. I don’t care what kind of investor you are–value, growth, old, young, medium-term, long-term–Colgate-Palmolive has been a wonderful firm to own. About the only people who might not like it are short-term traders, and even then, there are short-term periods when Colgate performs especially well.
The way I see it, there are probably six magic firms I write about. Two of them are Coca-Cola and Johnson & Johnson, which have such extraordinary earnings quality and hedges in place that it is almost certain that someone buying the stock today will be collecting cash dividends in 2050. Another two are Berkshire Hathaway and ExxonMobil, which are wonderful for reasons beyond the intrinsic characteristics of them assets themselves. Berkshire has Warren Buffett guiding a $55 billion cash hoard, and ExxonMobil … Read the rest of this article!
I believe students of investing will be looking back in 2025 to think, “Wow, Wal-Mart was pretty cheap at $60 per share in 2015. It was a classic example of Peter Lynch’s ‘blue-chip with a solvable problem’ theory.” The earnings yield on the stock is 8%, and is almost 9% when you measure Wal-Mart using a constant currency metric. The dividend yield is 3.25%, and the dividend payment itself has increased every year for decades. Although this explains why it won’t take much for Wal-Mart to give shareholders satisfactory returns from this point forward, it is worth taking a moment to pause and examine how Wal-Mart got itself in this position in the first place.
Mistake #1: Wal-Mart sought to improve the velocity of its inventory by reducing the amount of products on hand by 37% compared to 2005 figures. This boosts short-term profits–a corporation makes more money when it … Read the rest of this article!
If you owned a collection of ExxonMobil, Chevron, BP, Royal Dutch Shell, Total SA, and the legacies to ConocoPhillips and Phillips 66–which at times included things like DuPont–you would have earned compounded annual returns of 12.3% between 1956 and 2006. I find these fascinating not just because I am attracted to concepts that can beat the S&P 500 over a half-century with minimal work after making the initial investment, but because of the counterintuitive nature in which these returns have been achieved.
The long-term earnings growth of this basket of stocks was only 6.1%. That is the kind of growth that Wall Street scoffs at–how many salesmen can pick up investor clients promising that the investment selections will grow 6.1% annually over fifty years? Yet, when you throw in a 4.3% dividend, and reinvestment at decades of undervaluation, you get returns north of 12%. And considering that many people prize … Read the rest of this article!
Using a stock’s price-to-earnings ratio can be a useful metric when the following four conditions exist: (1) interest rates remain in a narrow band; (2) the growth of the enterprise is consistent through the decades; (3) the quality of the balance sheet and general risk profile remain closely the same; and (4) the stock is non-cyclical. All of these character traits need to exist, otherwise the use of historical P/E ratios can be a red herring rather than a helpful investment aid.
Companies like AT&T or Realty Income deserve higher P/E ratios when interest rates are 2% compared to 8% as the purpose of the investment is usually a quasi-bond with a growth kick compared to something like Visa where the purpose is long-term future growth.
Also, the growth rate of the company needs to remain consistent, otherwise you will be using historical data that assumed different characteristics when making … Read the rest of this article!
In a word? Chocolate.
Historically, there has been a cluster of three companies in top-performing sectors that build a disproportionate amount of wealth. If you turned your eye towards tobacco, you would make a lot of money over the years owning Altria, Philip Morris International, and Reynolds Tobacco. If healthcare was your thing, you would have done extraordinarily well over the years sitting on blocks of Becton Dickinson, Johnson & Johnson, and Abbott Laboratories stock. And in the beverage sector, the cluster of Coca-Cola, Pepsi, and Dr. Pepper held for decades would have created enough wealth to provide for your kids and grandkids. If high current income is on your mind, the energy sector is a friend with Exxon, Chevron, and Royal Dutch Shell.
I call this the easiest way to build wealth because it only requires three decision points: (1) look up the best-performing asset classes, and realize there … Read the rest of this article!