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The Coca-Cola Company Message Board

  • TOOHIGH2WIN TOOHIGH2WIN Jul 9, 1998 11:41 AM Flag

    Buffett rumor -

    The rumor is that Warren Buffett participated in
    the recent auction of 30 year inflation hedged
    treasuries. Lets examine why he might be buying these rather
    than KO stock. KO stock attributes include:

    P/E
    Ratio = 52.5x 98 est.
    Earnings Yield =
    1.9%
    Dividend Yield = .69%
    Price/Book Value =
    25.5x
    Guarantees = No guarantees

    Treasury attributes
    include:

    P/Int Ratio = 17.6x assuming 2% inflation
    Earnings
    Yield = 3.68% + inflation @ 2% = 5.68%
    Interest
    Yield = 3.68% + inflation @ 2% = 5.68%
    Price/Face
    Value = 1x
    Guarantees = Interest guaranteed by US
    Government
    3.68% real rate of return guaranteed by US
    Gov.
    Earnings guaranteed to grow at inflation rate by
    US

    Assuming the long term inflation rate jumps to 4%, this is
    what happens to the above
    numbers:

    Price/Interest Ratio = 13x interest assuming 4%
    inflation
    Earnings Yield = 3.68% + inflation @ 4% =
    7.68%
    Interest Yield = 3.68% + inflation @ 4% = 7.68%

    So,
    now lets look at one more factor. Lets assume that
    KO's earnings grow at 10% over the inflation rate, and
    lets assume further that the inflation rate is 2%. How
    long does it take for the earnings yield on KO to
    catch up with the interest yield on of 5.68% on these
    treasuries. My trusty hp12c figures that it would take 12
    years. Now, lets assume the inflation rate jumps to 4%,
    so that you are getting 7.68% on these treasuries.
    Assuming that KO's earnings grow at 10% over the inflation
    rate it only takes 15 years for KO's earnings yield to
    catch up with the earnings yield on these
    treasuries.

    What is interesting about this dynamic is that if
    inflation doubles, the price/interest ratio on the treasury
    decreases dramatically even without the treasury declining
    in value. The price/earnings ratio on KO, however,
    stays at 52x earnings(assuming no decline in KO stock).
    In order to stay competitive, it would seem that KO
    stock would have to drop significantly. If KO dropped
    in half in a more inflationary environment, it would
    still be at twice the multiple of the 30 year inflation
    hedged treasury versus 3x currently.

    Assuming
    that Buffett bought the inflation hedged treasury, I
    can understand why. An inflation hedged treasury may
    be one of the only types of investments that would
    do well assuming a more inflationary environmment.
    What could cause a more inflationary environment? How
    about government printing presses turning out more
    paper money. They are now printing money with abandon
    in the US and Japan. How about a turn for the better
    in Japan?

    Well, the bottom line is that the
    treasury looks like a no brainer versus the KO
    stock.

    See you at the beach!

    HAR HAR
    HAR

    TOOHIGH2WIN

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    • Are you a board certified proctologist or is their some other reason which qualifies you as an expert on rearends? ALWAYS COCA-COLA

    • I thought I told you to go play in the
      street.
      Children should be seen and not heard. Were you formerly
      know as Bad BRAD. you look a lot like him, you know
      ,sign in on the day you first post, with opinions
      formed, and with a very familiar attitude . snot-nosed
      foul-mouth ,you get the picture.
      The living example of
      poster boy for planed parent hood. you have no class ,
      you have no wit , you are also very very short. You
      have no money left , and you want to cry ,but it hurts
      too much. here a quarter now scram.
      notbuffett

    • Mr. Aw Shucks

    • Hear Ye, Hear Ye, Hear Ye.
      A new kid on the
      block just signed in today and he speaks profanity like
      a pro. Must be an intellectual chap , with a keen
      and profound mind to utter such charming words, words
      spoken by his mother, no doubt, for he is too young to
      have been out with other humans. I hope you will save
      your precious words for your mama to see and she can
      take pride in the enrichment she has brought forth to
      the earth ,to share with all mankind.
      an offspring
      just a few hours old with the intellegence of his
      parents . Damn don't you wish you had said that? I bet he
      has been a bear in a former life . You can't see
      remarks like that outside of, the toilets of Sing-Sing.
      and he has shared them with us common people . I know
      not what others may think but I suspect he is related
      to THTW. Did you learn anymore words today that you
      would like to share. Now go and play in the street
      sweetie..
      notbuffett

    • I am sorry that you have lost so much money
      shorting
      our wonderful stock. I have been insulted every
      which
      way to Sunday by you shorters but finally one of you
      has
      tried in vain to insult myself and notbuffett at the
      sme time.
      My wise friend and I know that when we
      are insulted that we are
      doing our job very well
      for our KO family. The greatest
      compliment that a
      shorter can give us is an insult.
      One more point, in
      your profile it says that your sex
      is neuter, I
      hope that you were not castrated by KO
      in your
      short position. To Notbuffett my wise friend
      I
      wonder if we will get more abuse when KO hits $90
      on
      July 17th, Do you hear that my friend
      RichardTheodore.
      Put down MYCROFT for July 17th for KO will reach $90
      on that day.
      As a famous Chef in New Orleans says
      "I GUARANTEEEE!!!! it"

      Another shorter hits
      the DUST!

      Cover Comedyoferrors before KO gives
      a ComedyofTERROR!!!!!!!!!

      MYCROFT

    • They were meant for Mycroft, but that's alright, you deserve them as well.

      ODN1

    • I have been observing this board for a number of months and there is one thing that I have learned...if you stop short, your head will go right up nonbuffet's ass.

    • My thaughts were the same. I could not figure out
      why he stated that especially when a few months ago
      we were at the 8600 level and below.

      With the
      earning season just about to start, I would think the
      upside is just around the corner.

      Unless someone
      needs some extra comissions for their new cars.
      Comission to sell the stocks, and comission to buy them
      back. Unlike just getting a comission to buy the
      stocks.

      ODN1

    • Market cap in '82 was 12 billion.

    • something to do with the fact they are in the
      business of selling ink. The bad news scenario is what
      they think sells better. They may be correct. All I
      know is no one, except maybe a few on X-FILES know
      where themarket is going next. If they do they ain't
      telling you or me, IMHO. I do think this board is a good
      place to learn more about KO and market in general.
      Tonite might be an exception. Good Luck and ALWAYS
      COCA-COLA.

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