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Berkshire Hathaway Inc. Message Board

  • Novalis_97 Novalis_97 Aug 12, 1998 10:26 AM Flag

    Buffett buying Pepsi?

    I haven't been paying attention to the markets
    recently. Someone told me he heard on TV or somewhere that
    Buffett has already or is considering buying some Pepsi.
    My friend told me it was because Pepsi is now doing
    what Coke did many years ago -- sell off its
    capital-intensive bottling operations. In addition, Pepsi's
    decision to sell off its fast-food operations a while ago
    was a good decision. Anyone see anything about
    Buffett saying anything about Pepsi lately?

    I
    think Buffett buying Pepsi sounds plausible:

    1)
    He used to drink Pepsi
    2) Pepsi sold off its
    fast-food operations and selling off its bottling
    operations
    3) Pepsi's stock price has been tanking
    recently

    What do you think?

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • ..........if this were true WEB would have to resign from the board of Coke wouldn't he? In past writings he's expressed great loyalty to Coke calling it one of BRK's "core holdings"

      • 3 Replies to bobo21029
      • Pepsi is the biggest steal in the S&P500 right
        now. Almost totally immune to economic forces such as
        Asia, and with two of the dominant brand names in the
        U.S. in Pepsi and Frito Lay. Regardless of that fact,
        I know there are some things more important to WEB
        than money, and one of them is the trust and respect
        of Doug Ivester and the rest of the people at Coke.
        Buying Pepsi is out of the question for WEB in my humble
        opinion.
        He has said many times that he'll pass up a good
        deal if he doesn't feel right about it, even if there
        is easy money to be made. This fits into that
        category.

      • I don't see PEP in the future. Mr. Buffett has said he prefers to invest in the leader of an industry and has also expressed disdain for "turnaround company" plays.

      • I think he would, if he thinks it is a good buy.
        I don't think he would have to resign from the
        board, unless somehow he gained a major stake it it
        (over 5%).

        He has shown he doesn't mind holding
        stocks of competitors, e.g., Dairy Queen &
        McDonalds.

        (Although he sold some MCD, he stated at the annual meeting
        he still has quite a bit of it, not enough to meet
        the $750MM reporting criteria for the annual report)

    • Buffet has said the market is too high. He won't buy any more stocks until they are reasonably priced. Does your gut provide better info than that?

    • i'm definately not an expert on the snack food
      business, but i would assume that frito lay would compete
      with all other snack foods (i guess those you would
      munch on while watching sports or a movie or something)
      such as popcorn, nachos and salsa, store brand nachos
      and chips and stuff like that. as munger said in an
      interview with morningstar, to understand coke it is
      important to understand pepsi and cott - especially cott.
      why did munger feel store brands to be a threat?
      store brands proliferate on price rather than on
      brand.

      in addition, unless somebody can tell me "the return
      on equity for the fountain business is 24% and the
      return on equity of the snack food business is 26%,
      therefore the average return on shareholder equity for
      pepsi is 25". I have no idea if frito lay is hurting or
      helping pepsi. it could equally be that the fountain
      business is earning the bulk of pepsi's return. if that is
      the case, why is pepsi in the snack food business
      exactly?

      jimc
      the toronto investment
      club
      http://torontoinvest.ndsn.com

    • A very strong brand makes earnings more
      predictable, at least in most industries, and so commands a
      higher p/e due to discounting future earnings with a
      lower discount rate. Anyone who doesn't agree with
      that, prove me wrong.

    • I...would...suck..out...his...hole

    • Where are you getting your numbers? Take a look
      at Value Line, not the Yahoo "profile" or whaerever
      you're getting the numbers.

      Second, you are
      correct that brand equity does show up in earnings.
      However, what makes a company with brand equity be valued
      higher is that you discount its future earnings back at
      a lower discount rate because the brand recognition
      makes earnings much more predictable. As an earlier
      post mentioned, it doesn't make them predictable
      forever, but in some cases almost.

      As for the Frito
      Lay thing, I don't have the Frito return on equity in
      front of me. I would be very surprised if it isn't far
      greater than the average American firm's ROE because of
      its strong brand name and resultant pricing power.


      Total capital is a number which includes all capital
      employed in the business. Debt+equity=total capital.
      Campbell's is doing a wonderful job if you use that as the
      only guide.

    • I believe your gut is right.

      May the WEB be with you.

      T.C.

    • I just came in on the brands discussion so you
      might have covered what I have to say. It seems to me
      that powerful brands help the owning company in two
      respects - 1) higher sales because of being so
      recognizable, and 2) higher margins because customers are
      willing to pay more. For example, if we set off across
      country traveling and lunch time comes we are more apt to
      stop at McDonalds, Wendy's, etc. because we know what
      to expect. We would probably be reluctant to stop at
      Joe's Dinner(about which we know nothing) and run the
      risk of wasting time and money on a bad meal. Even if
      it cost a little more at McDonald, Wendys, etc. most
      people would opt for the known brand.

      Of course,
      probably the best known brand worldwide is Coca
      Cola.
      There are probably many places where coke has to lower
      it prices because of competition from Pepsi, Sams
      Choice, etc., but there are many places particularly
      overseas where there is very little competition in the
      soft drink market. There coke can command a much
      higher price. Of course, being a dominant brand should
      lead to economies of scale. Coke sells more soft
      drinks (it sells about half of all the soft drinks sold
      worldwide), so it must be able to produce an 8 ounce serving
      of drink cheaper than other competitors who sell
      less.

      Anyway that is my thinking.

    • I'm taking a huge hit on Disney. Any advice from you Berkies out there? My gut instinct says buy more at current price.

    • I am personally full of respect and admiration
      for Mr. Buffett, BUT it does not mean that I will
      always to the same things as he does.

      There are
      two things that make me act differently:

      1) My
      personal finances are different from Mr. Buffett in two
      important respects:
      1a) My asset allocation is
      different
      1b) My risk tolerance is different
      2) I do not
      have the same universe of investment opportunities
      open as Mr. Buffett does.

      For example, I
      personally could not merge with General Re and change my
      asset allocation tax free.

      Or, an investor would
      not have 100% of his savings invested in stocks if a
      50-60% drop would leave him too exposed. Whereas the
      rich Mr. Buffett could do just that because he is very
      rich and his personal lifestyle is cheap compared to
      what he owns.

      So, my conclusion is, it is not
      illogical to invest differently from Mr. Buffett even if
      you think that he is investment God.

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