The rise of Apple, Amazon, Alphabet, Facebook, and Microsoft over the most recent investment generation has led to perhaps an uneven view of American growth. From 2010 through 2020, the S&P 500 appeared to achieve top-line revenue growth of 6.7%. That was actually better than the post-WWII average of 6.2%.
But almost all of the revenue gains across the index came from these top five stocks. If you subtract the big five from the S&P 500, and only measured the top-line growth of the S&P 500 of the other 495 companies, you would only see top-line growth of 3.8%. From an investment perspective, it is quite difficult to get double-digit returns from a particular investment with revenue growth that barely exceeds inflation. Cost cuts, productivity gains, and share repurchases can only get you so far. The real wealth gets made by selling a meaningful amount of more stuff each year … Read the rest of this article!
There is almost no business in the world that is as great as Microsoft. If presented with a scenario where I could make ten investments at fair value to hold for a lifetime, Microsoft would be one of the slots. Its software products for individuals and businesses as well as cloud data storage segments has given it 30% profit margins on business lines that grow increasingly entrenched over time while achieving double-digit sales growth.
In addition, it has one of the strongest balance sheets in the world with a net cash surplus of almost $70 billion. Monster repurchases, one-time dividends, or large acquisitions certainly await its future. The R&D budget is one of the five largest in the world, and internal product growth is almost certain to contribute new products meaningfully over time. It is exactly the kind of business you would love to own over the next couple decades. … Read the rest of this article!
Anheuser-Busch Inbev (BUD) has announced the terms of financing for its $104 billion acquisition of SABMiller for $68 per share (it works out to 44 pounds per share on the London Stock Exchange.) Verizon Communications, which currently holds for the record for one-time corporate borrowing as a result of needing $49 billion to buy out a joint venture with Vodafone in 2013, is about to be surpassed by 3G’s current strategy to take on $70 billion in debt to complete the SABMiller transaction. About $55 billion of debt will come from bond offerings.
This debt binging is entirely predictable for those that have studied the history between the partners at 3G Capital. The origins trace back to 1989, when Jorge Paulo Lemann, Carlos Alberto, Sicupira, Marcel Hermann Telles, and Roberto Thompson Motta got their hands on Brahma, a declining Brazilian brewer that had the highest costs of any company doing … Read the rest of this article!