Spekulatius

I checked our fridge and found Heinz ketchup and Heinz avocado mayonnaise there. I actually really like the Heinz avocado mayo. We do buy a lot of store brands. Generally for store brands, the discount to major branded items is more like 30%. My guess is that this may still be too high and entices customers to switching. KHC management apparently fights this problem by lowering the price gap and reducing their margins of course to defend and grow market share. My guess is that consumers will accept some premium for branded items, but less than it is currently. One of the somewhat scary part of this whole issue that it is occurring when the economy is strong and there is full employment. Throw in a weaker economy when more folks are watching their expenses and the trend towards commoditization in CPG could grow to another level.

After reviewing CVS a bit, as well as other players in this sector, I would be more comfortable buying WBA than CVS, as I think WBA is better run, has a single focus and much less debt. I don’t own the stock yet, but I think it looks interesting, with an ~11x PE (backing out amortization expenses). I do own some MCK purchased recently and think it is a nice defensive pick, despite the negative headlines from the opioid issue. I also think that there is a chance that these wholesalers (ABC, MCK, CAH) will get bought up, if the trend indeed goes towards integration. Just from my experiences, it seems that at times, sectors of the health care sector become quite cheap. I recall pharmaceuticals being cheap, health insurers a couple of years ago and now distributors and pharmacies. In all these cases that I recall, the sectors that wer cheap seemed to have come back quite nicely, as Mr. Market seemed to have overestimated the trajectory of change and a reversal to the mean bet would have worked. this may be a similar type of situation where the wholesalers and the pharmacies have become too cheap and will revert to the mean as well.

The question to me is if one likes the CPG sector, is KHC really the best bet? Something like SJM for example looks better to me in terms of valuation and the categories they operate in (coffee, pet foods). We will see more in a couple of days when they present their quarterly results. Nestle seems to be the only sector stock that hasn’t been sent to the dog house, can it remain this way?

I believe the increased dispersion in results is a consequence of the economy slowing down, not higher interest rates. When the economy accelerated, strong and weak business look more alike, when an economy slows down, the dispersion between the strong and the weak becomes larger. I don’t think AN is bad business necessarily, but I believe that they currently have execution issues that their competitors might not have currently.

It’s harder to go from 100k income to $20M in assets than from $10M in income to $2B in, because with $100k, you living expenses will eat up most income and your investible free cash flow will be a much smaller part of your gross than with $10M in income. Well for some people, the expenses just rise with income admittedly, but for most of us, it would be easier to save $5M out of $10M income than $50k out of $100k. I agree that Wertheim’s track record is quite extraordinary, as he has probably beaten 99%+ of his peer group in wealth creation, even from his $10M income point in the early 80’s. Weather he beat the index or not doesn’t really matter - he kept compounding his wealth at a pretty good clip, while most investors either underperform or blow up (when concentrated) over the course of 40 years.

Sun Hing vision 125.HK looks good to me. I haven’t bought it yet, though.

The problem for CVS in the last quarter wasn’t with Aetna, it was with CVS core business (PBM and retail), I don’t think that CVS has done much work on integration with the acquired Aetna business yet. The whole talk it’s CVS health care reminds me a bit of the Citicorp financial superstore concept of the 90’s and we all know how this worked out. I actually think that the integrated health care is the future - I have seen it (as a customer ) and it’s called Kaiser HMO... I just don’t think it will be easy to achieve with acquisitions rather than grow it organically over time.

I have no comment on the valuation, but I think we will see even formal events (wedding etc) evolve with attending people wearing casual clothing. NYC will probably be behind the eight ball with this trend, but I have seen this already in CA.

My guess is that the losses are due to Puerto Ricon bonds, which became an issue way after the financial crisis and seem to be coincidental with the mounting trading losses from 2012-2016. While I am not sure what exactly was insured it might be that some impaired bonds never defaulted as they were restructured. We can’t tell, because we don’t know exactly what BRK insured or the fine print of their protection (which I think was possibly secondary to the monoline insurers “first line” protection on these bonds.

https://seekingalpha.com/news/3436152-autonation-ceo-unloads-tesla AN down 4% on disappointing EARNINGS. TSLA up 1% because it finally started selling cars... LOL. Pretty much sums it up. Tesla is irrelevant as a comp here, imo. They missed the revenue number for new car sales by a mile. I think it was obvious that something was wrong with AN’s business execution based on to the massive management changes. SAH in the same business had issues as well while PAG did relatively well. In a different sector, it seems that we are seeing similar things (significant leadership changes, lack of execution in a tougher environment) with FDX.

So, what is the thought after CVS calibrated expectations for 2019 downwards? The stock looks cheap with a midrange earnings expectation of $6.78/ share but a lot of key performance indicators (profit/claim, operating margins etc) seem to be in a LT downtrend. I am tempted to buy cheap durable business like CVS, but I am wary to buy a business in the need to a serious restructuring, since my experience is that they in most cases really cheap anymore when all is said and done.

I agree. Assuming this sells down to $40 tomorrow, it's still @ ~13.75X EV/OP, which isn't exactly "stupid cheap" for a low to no growth business that cash flows well. They need to dump their 30 year old CFO, forget about acquisitions, and renew their focus on the basic blocking-and-tackling at the heart of the CPG space (fighting for shelf space, optimizing promotions and marketing, etc). There's no reason for Buffett to sell for over a decade. It won't be a home run, but probably a single rather than a strike out like you're implying. BRk will be Ok with their KHC investment. if things really turn sour, they will get first dips on any recap (preferred, capital raise ) to straighten things out. A private investor is probably better off looking elsewhere.

I plan to be there , assuming the weather gods are reasonable.

The sad thing is that even with the haircut implied by AH quote, this stock looks at best fairly priced, but most likely overvalued, given the business trends. This is now truly a major turnaround situation.

Thanks for the write up. I agree this looks promising. Yes, Brexit could be a short term headwind, since Spain is a very popular destination for the Brits (almost 30% of Aena’s passengers are from the UK), but I expect any dent in travel to be short lived. I put this on my watch list.

AR or VR has been suffering from hardware deficiencies. The high end optics are very hard integrate into wearable elements like glasses. GOOG, FB and Apple all are hiring optical engineers to work on this and other problems but some fundamentel breakthroughs may be needed, to build the devices that will truly enable the technology.

The left coast would do well as one state. I think Texas would want to do go it alone too.the North Eastern New England state fit together well and I would include NH :-). The Rocky Mountain states have a lot in common. The south would probably come together under a confederate flag. The rest - who cares :o.

Isn’t it possible that AMZN pulled back from LIC for reasons that have little to do with local oppositions? Second thoughts maybe that they don’t need a 2nd split headquarter (whatever that might be). Have they mentioned a replacement for the LIC headquarters or another location for the 25k to be created jobs? All of a sudden, this is no longer needed and doesn’t even need a backup plan?

Germany also has a balanced fiscal budget. Same idea.

The article is more about the wonders of compounding than anything.

Currently watching: “The Expanse”, Season 3 “Perfume” Germain Film noire series (loved the book from Süsskind too) “Russian Doll” - I agree it’s a great script “ Babylon Berlin” - very athmosperical Film Noir/ crime (of course I am biased towards German TV series)

The US is kind of unique in the way that a new customer will always get a better deal than an existing customer (everyone who dealt with wireless/cable companies knows this) and likewise, a company that will move will get a better deal than companies that are already there. I guess it is the concept of customer acquisition cost and expecting inertia from existing customers or companies. I have seen likewise in Europe as well, but not as pronounced than in the US.

Isn’t Scenario #1 pretty much what happened in the past? It seems pretty much a continuation of the existing trend, so it’s not surprising that the stock has this as a baseline. I would argue that you need a worst case scenario with even worse revenue trends.

TSU is simply too small to make a difference for BAM. BAM would need to increase the size of TSU multiple Times to make a difference for BAM and my guess is that BAM didn’t feel like running an insurance business was their core competency, so they spun it off to set it lose. As others mentioned, the performance of other captive insurance cos run by asset managers ist exactly inspiring either.

So what’s the safest long here - UNIT common?