High Growth, High Valuation At Starbucks (SBUX)

Wow. The management team at Starbucks does not seem wedded to the public disclosure policy of “promise low, deliver high.”

At an investor’s conference in New York today, Starbucks unveiled very ambitious five-year plans for their investors.

They called for: 10% annual revenue growth, 15-20% earnings per share growth, and 5-8% same store sales growth.

It anticipates high revenue growth from its plans to open 5,000 stores in China between now and 2021, and it foresees extremely high earnings growth of nearly 20% because the coffee giant sees a total market of 1,000 “Reserve” locations across the United States where it can generate obscene profit margins by selling $10 coffee.

The catch is that everyone in the investor community is aware that Starbucks has grown earnings by 17% annually over the past ten years and continues on its present pace. At its current market cap of $85 billion, Starbucks (SBUX) Read the rest of this article!

JP Morgan Flirts With Special Dividend

One of the first articles I ever wrote as a columnist at Seeking Alpha was titled “JP Morgan: A Smart Bet For The Patient Investor” in which I offered: “If you are a patient investor, and have a 5-10 year horizon, you will probably do quite well. I expect JP Morgan to deliver double digit dividend growth over the medium term which will eventually bring the stock price up with it.”

Since I wrote that article in November 2011, earnings at JP Morgan have grown at a 17.5% annualized rate, dividends have grown at a rate of 20.0%, and the stock price has compounded at a rate of 27.2%.

When the price of the stock goes up at a greater rate than earnings by 10% for five years in a row, it is wise to pause and reassess: Has the transition from undervaluation to fair valuation crossed over Read the rest of this article!

Hilton Worldwide: Stock Spinoffs, Reverse Stock Split

Big news for shareholders and prospective shareholders of Hilton Worldwide (HLT):

First, the Board of Directors at Hilton Hotels is spinning off two businesses to shareholders. It is bundling its timeshare business up into a new business called Hilton Grand Vacations (HGV). And some of the real estate located at hot-spot destinations is going to be packaged into a publicly traded company called Park Hotels & Resorts (PK). This spinoff will occur on January 3rd. On the same day, Hilton will execute a 1-for-3 reverse stock split. This is done because some corporations feel shame about having a $15 stock price, thinking a $45 stock has more credibility. Nearly everyone sees through this maneuver, but the game goes on.

What I see as the risk for shareholders of Hilton, either for the parent entity or its successors, is the distribution of debt that will be accorded to each of these … Read the rest of this article!

Ty Cobb’s Estate Would Own More Coca-Cola Stock Than Warren Buffett

A noteworthy investing passage from page 155 of Charles Alexander’s book “Ty Cobb”:

“In the 1920s, Cobb’s Coca-Cola stock would prove particularly renumerative. Since his first commercial endorsements for the soft drink in 1908, Cobb had been friends with Robert W. Woodruff, who in 1923 succeeded his father as president of the Atlanta based-business. Woodruff and Cobb were frequent hunting companions, especially at the Woodruff family’s plantation in southwestern Georgia. Many people later regretted not getting in on the ground floor with Coca-Cola, as Cobb had done; but maybe none were sorrier than three sports writers whom Cobb, relaxing in New York on the evening after he was named Tigers manager, futilely urged to buy Coca-Cola at a little more than twenty dollars per share. Within a few years that stock was worth nine times as much. Cobb himself continued to buy into Coca-Cola, whose profits and operations expanded spectacularly … Read the rest of this article!

Warren Buffett The Dividend Investor

I have heard it repeated over and over again that dividends don’t matter to Warren Buffett, and therefore, should not play any meaningful role in how other investors arrange their personal affairs. This type of conclusion is based on the superficial fact that Warren Buffett prevents Berkshire Hathaway (BRK.B) from paying a regular dividend to its shareholders.

That conclusion is a bit off because it ignores Warren Buffett’s own history, his current personal circumstances, and the current incentives that he has offered for executives of Berkshire’s subsidiaries.

To understand Buffett’s own history, check out pages 338 and 339 from Alice Schroeder’s “Snowball” biography of Buffett which contains the following quote:

“As 1974 began, stocks for which he had recently paid $50 million lost a quarter of their value. Berkshire, too, slid down to $64 per share. Some of the former partners began to fear it had been a mistake to … Read the rest of this article!