Coca-Cola’s Reported $3 Billion Tax Bill

On Seeking Alpha, a Coca-Cola investor wrote that he sold 11,000 shares of Coca-Cola stock after reading a headline about its $3.3 billion tax bill, arguing that it turned the stock into dead money for a long time and reveal lack of controls at best and dishonesty at worst on behalf of Coca-Cola’s management.

I agree that it would be a concern for Coca-Cola shareholders if: (1) Coca-Cola had to actually come up with $3.3 billion in cash to pay tax bills to the IRS, and (2) the oversight was indicative of dishonesty or lack of controls at Coca-Cola.

Even in a worst-case scenario, I would find this news forgivable under both scenarios as a $3.3 billion bill represents about four months of Coca-Cola profits. It would be an unpleasant amount of money for the company to cough up, but it would still sail along over the long run. And … Read the rest of this article!

Debunking Warren Buffett’s Phillips 66 Investment

If Warren Buffett did not recently agree to buy Precision Castparts for $32 billion, I think he would have considered finding a way to buy Phillips 66 outright. The problem is that the company’s market cap is around $42 billion, and when you factor in the necessary premium to purchase a business outright, it would have likely consumed all $60+ billion of Berkshire’s resources and put the company’s cash hoard below the $20 billion desired level. So he had to settle for a $4.5 billion, 10.8% stake instead.

Much of the conventional reaction to Buffett’s purchase can be found in the Wall Street Journal or in the litany of analyses offered by Seeking Alpha writers, and I just want to address two of the specific conventional wisdom claims that you have read about Buffett’s Phillips 66 purchase.

Conventional Wisdom #1: Buffett’s purchase of Phillips 66 is “proof” that he thinks Read the rest of this article!

Know This About General Electric Stock

1931-1934. 1966-1968. 1973-1974. 1986. 2008-2009. In each of those years, the price of General Electric stock declined by at least 15% greater than the stock market as a whole. This is despite the fact that General Electric was a superior company that outperformed the Dow Jones by three percentage points annually since 1933, 3.5 points annually since 1967, 2.25 points annually since 1973, one percentage point since 1986, and has underperformed the S&P 500 by a percentage point annually since 2009. The 1986 and 2009 valuation periods will eventually become more attractive once GE executes its strategy of selling financial service operations and receives a higher P/E ratio upon becoming a pure play industrial investment.

During every period except 2008-2009, the short-term underperformance of General Electric was due to temporary declines in the demand for industrial equipment that made General Electric’s profits fall further than that of the typical Dow … Read the rest of this article!

A Primer On Terrible Investing

About this time last year, GT Advanced Technologies announced its surprise bankruptcy filing. The company was known for its enthusiastic shareholders that had the zeal of the St. Louis Cardinals fan base, and stood to make shareholders a lot of money by manufacturing the sapphire glass that would be used in iPhones and Apple watches across the world. When GT Advanced missed a production deadline, Apple switched suppliers and simultaneously demanded debt payments from GT Advanced. The sapphire glass manufacturer created the Bill Buckner mistake of going deep into debt against the company that also had full control of its earnings.

In the aftermath of the bankruptcy, I received quite a few e-mails from readers asking what kind of elements can signal a threat to a potential investment before the benefit of hindsight kicks in.

Aside from valuation concerns, a bad investment occurs when: (1) a company has bad management, … Read the rest of this article!

Yahoo’s History And The Alibaba Arbitrage Opportunity

Yahoo (YHOO) is one of the most criticized technology companies in the world. It is frequently seen as a step behind Apple and Google, and the haphazard growth in advertising dollars across its journalistic platforms (coupled with a non-intuitive interface) make the company an easy target for ridicule on the CNBC circuit.

While I agree that Yahoo is not a company I would put on my list of “100 Companies To Buy And Then Take A 50 Year Nap”, there are nevertheless many peripheral factors that make Yahoo far more intriguing than a superficial glance at the commentary or the news site would reveal.

David Filo and Jerry Yang hung out at student centers, bars, and coffee shops in the early 1990s while graduate students at Stanford, trying to figure out a way to get news stories and word searches to people across the United States in a more convenient … Read the rest of this article!