Real Estate Investment Trusts (REITs) Are Buying Back Stock

Stock buybacks are one example of theory not quite holding up to reality. After the Securities & Exchange Commission issued a 1981 ruling which stated that companies will not be held liable for stock manipulation if they engage in repurchases of their own stock. Repurchases of common stock occurred before 1981, but it did not come with the explicit blessing from the SEC that civil and criminal charges for stock price manipulation would not apply.

Since then, there has been a significant debate about whether stock repurchases or significant dividend hikes are in the best interest of the shareholders. In the late 1990s, stock repurchases gained favor in corporate boardrooms, as stock options were tied to reaching earnings per share targets and the retirement of shares would help executives reach those target deals.

This is one of those big deal things in investing that you need to keep in mind–almost … Read the rest of this article!

Some Stocks Are Not Value Investments At Any Price

The current analyst consensus for Pier 1 Imports (PIR) calls for the stock to trade at $30 per share within five years. Based on the current price of $8 per share, you might think that sounds like an attractive investment to consider.

I think the analysts are wrong.

This is a company that, absent a corporate buyout, will eventually be destined for bankruptcy based on fundamental changes in the business model since 2004.

For most of the company’s existence, it was a lucrative investment. It sood niche furniture, lamps, wood accessories, vases, and other bourgeoisie furnishings at 15% profit margins. For people that wanted to be stuff brand new, and wanted something nicer than the Wal-Mart or Target variety brand, it had a captive audience.

And the investment returns showed how much can be made by selling highly profitable items to the same small niche over and over again. If … Read the rest of this article!

The Anheuser-Busch Plan To Buy SABMiller

I have not covered Anheuser-Busch stock nearly as frequently as some of the other companies that have the top slots in a consumer market segment. My hesitation for covering the stock has been a product of the Belgium headquarters which require heavy dividend taxation regardless of whether you make the investment in a regular brokerage account or a tax shelter, and the company’s staggering debt load. They have $51 billion in debt.

Last August, I argued that Anheuser-Busch would be unlikely candidate for significant earnings growth and dividend growth for the medium term, as I publicly disagreed with analysts calling for 9% annual growth. I made that prediction because I saw revenues stagnate, and I knew that retained earnings would be needed to bring the debt down to more manageable.

The 3G team did not grow the brand, but they managed to only lose a point or two of market … Read the rest of this article!

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!