Here are a few thoughts on three hot companies that I'm not buying right now:
LULU: Lululemon Athletica is a rapidly growing clothing store anchored in Yoga gear. It’s priced at $5 billion right now. The biggest company in its industry is Ralph Lauren at $10 billion. One double. It has great numbers.
At the pace it’s growing, it will be there in 3 years. Then what? I buy companies with a view to hold forever. LULU is more likely a short term shooting star at a too high price.
MRO: Marathon Oil is a solid oil company with pretty ok Moat numbers. It’s well managed. Good ROE and low debt.
What's the value? Growth rate of 10% a year (analysts est 2%). I want a minimum 15% return per year and an 8 year payback time for my investment so its probably worth about $50 right now and its selling for $50.
There isn't much margin of safety. BP might be a better value.
BIDU: Baidu is the Chinese Google. First thing I want is to know is whether this business will still be growing 20 years from now. And I want to know it for sure. No doubts. 2nd thing is I want to totally trust the numbers. Baidu is 0 for 2. I'm not saying it isn't great and that the numbers aren't good, I'm just saying who knows.
Remember Puda Coal. Here today, gone tomorrow. If I did trust it, what's the value? Its $50 billion market cap. If I grow it at half the analyst estimates, it will be a $800 billion company in ten years. If they're right it will be a $3.2 Trillion company. Well…. The biggest company in the world is Exxon. $400 billion. What I'm saying is, even if its all true, BIDU might be a tad pricey for a Rule One investment.
Now go play
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