So there’s been a few companies where it took me a while to figure out, “Holy cow, this company is a printing press. It has a license to print money and is growing fast.” These come-to-growth moments have been loosely as follows: I came to appreciate Disney in 2013, Visa in 2014, Nike in 2015, and now, in 2016, Sherwin-Williams has really been the business that has come onto my radar after years of neglect.
The stock rarely goes on sale, and I imagine that many people buying it outside of the 2008-2009 period felt like they were paying a higher price than they’re comfortable with. But Sherwin-Williams has such an extended record of growing earnings quickly that the seemingly high price of the moment becomes a pined-for entry point in short order.
These are the total return data points:
Since 1985, Sherwin-Williams (SHW) stock has returned 16.3% per year.… Read the rest of this article!
Bayer’s $62 billion all-cash offer for Monsanto was publicly disclosed earlier today. My five thoughts on the proposed transaction, in no particular order:
Point #1: Monsanto’s growth has come entirely from buybacks of late.
In 2012, Monsanto made profits of just a hair under $2 billion. In 2016, Monsanto is on pace to make a little bit over $2 billion. Specifically, the change is from $1.997 billion to $2.0250 billion, for a cumulative growth rate of 1.40%. And yet, Monsanto has covered up some of this core business stagnation by taking on enormous sums of debt in recent years to retire shares and boost the earnings per share.
Back in 2012, Monsanto had a nearly pristine balance sheet. It was carrying $2 billion in long-term debt, and was making $2 billion in annual profits. That’s exceptional financial strength for a company that requires moderate ongoing capital expenditures. And now? Monsanto … Read the rest of this article!
I’ve been covering stocks for five years, and there are very few excellent long-term businesses that I have neglected to mention at least once. After noting how Cisco investors need to make peace with a management team that feeds at the trough due to the detriment of shareholders, I want to talk about a company that is very good at keeping compensation reasonable while also delivering exceptional value to shareholders: Sherwin-Williams (SHW).
Even though Sherwin Williams has been raising its dividend for 38 years, and sells paints and automotive coatings that are well known to consumers, you rarely hear it mentioned in discussions of ideal long-term investments. I suspect this is because the starting dividend yield frequently hovers around the 1% mark. A lot of people who get interested in owning large, established firms want to see at least 3% of their investment come right back at them as a … Read the rest of this article!
There are two types of non-beginner mistakes that I try to warn against. The first is that people shouldn’t generate a cash-generating asset simply because it has experienced a change in the business cycle that demanded a dividend cut, particularly if the business deals in commodities (see Conoco’s fall to $31 shortly after its dividend cut compared to the current price of $43 for an example). The other mistake involves ignoring companies with truly superior balance sheets–the Berkshire Hathaways, Googles, Microsofts, Johnson & Johnsons, and Ciscos of the investment world that are much stronger and have the capacity to quickly increase their earnings power in ways that a cursory P/E analysis do not make apparent.
If I had to create a buy-and-hold tech portfolio, the leading candidates would be Google/Alphabet, Amazon, Microsoft, and Cisco. I disqualify Amazon from consideration in almost all of my writing because there is no connection … Read the rest of this article!
Sometimes, it is helpful to start an analysis with the converse inquiry: “What stock am I familiar with today, don’t own, but think has a fair chance of being one of those omitted regrets ten to fifteen years from now?”
When framed like that, I come back regularly Synchrony Financial (SYF), the spun-off consumer lending arm of General Electric back in 2014 that is 2.6% owned by Berkshire Hathaway.
It did not really gain much attention in the investor’s eye during its inception because spun-off companies take a year or two for their standalone operational results to become clear, and, prior to 2016, Synchrony did not pay out a dividend. Even then, the initial dividend payout was de minimis, well below 1%.
But, of course, those are information asymmetry and evolving capital allocation issues. Those do not address the merits of whether Synchrony is a great investment.
As you may … Read the rest of this article!