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Buffett takes $3.7 billion stake in Exxon Mobil


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EBIT/Tev (one of the best if not the best predictors of returns in general) had it in the cheapest decile of >10B US equities when Buffett was buying.  Add to that the fact that they are the low cost producer, a history of strong capital allocation, a history of strong returns on capital, and a rock solid balance sheet.  Bonus points for oil as a bit of an inflation hedge if CPI picks up. That is a recipe for success.

 

Pretty consistent with Wesley Gray/Greenblatt research.

 

What is EBIT/Tev?

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EBIT/Tev (one of the best if not the best predictors of returns in general) had it in the cheapest decile of >10B US equities when Buffett was buying.  Add to that the fact that they are the low cost producer, a history of strong capital allocation, a history of strong returns on capital, and a rock solid balance sheet.  Bonus points for oil as a bit of an inflation hedge if CPI picks up. That is a recipe for success.

 

Pretty consistent with Wesley Gray/Greenblatt research.

 

What is EBIT/Tev?

 

Earnings Before Interest and Tax/Total Enterprise Value.  You could go further up the income statement to EBITDA yield, but I prefer EBIT when running loose screens (uses depreciation as a proxy for capital deterioration, which as we know isn't true).  Papers that I have seen seem to show it is roughly a wash on performance between the 2 stats.

 

 

Enterprise level metrics show superior correlation to results as they normalize for leverage. P/E and for that matter book/market screens give an "unfair advantage" to levered up firms. Finally book screens don't seem to work well on mid-large cap stocks in practice.

 

 

Return on Capital seems to add some juice, as Greenblatt claims in the Little Book.  The Magic formula ranks stocks on a 50/50 factor of ROC and EBIT/EV... but, you should know that Tobias Carlisle contends that the cheapest value decile stocks, ranked by ROC, should outperform the seemingly random 50/50 factor that Greenblatt has chosen.

 

At some point of course, over fitting may be an issue, but I suspect Tobias is closer to the truth, hence my comment on XOM.

 

 

Perhaps we should move this discussion to another thread.  I do think it would be valuable to discuss apples/apples metrics though.  I have noticed quite a bit of confusing ratios that cross compare firm, value, and equity level metrics.  Each metric can of course be useful, but only as long as you are comparing apples to apples, if you follow what I mean.

 

EDIT: Oops...I realize you may just be looking for the XOM EBIT/ev yield?

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Buffett inherited mcDonalds from the his General Re take over they had a huge position built up on it....he sold it off..he makes fun of him self for doing so...was not his Pick.

 

However, the reality is that McDonalds fell to $11 a share in 2003...and it was going out of business etc...even Fairfax bought it then and sold it at $17...silly in hind sight...I did not buy it or Apple that traded for net cash just before that...

 

Obvious big mistakes! I think Exxon is small hedge on oil prices with a yield to wait.

 

Dazel.

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  • 2 weeks later...

EBIT/Tev (one of the best if not the best predictors of returns in general) had it in the cheapest decile of >10B US equities when Buffett was buying.  Add to that the fact that they are the low cost producer, a history of strong capital allocation, a history of strong returns on capital, and a rock solid balance sheet.  Bonus points for oil as a bit of an inflation hedge if CPI picks up. That is a recipe for success.

 

Pretty consistent with Wesley Gray/Greenblatt research.

 

What is EBIT/Tev?

 

Earnings Before Interest and Tax/Total Enterprise Value.  You could go further up the income statement to EBITDA yield, but I prefer EBIT when running loose screens (uses depreciation as a proxy for capital deterioration, which as we know isn't true).  Papers that I have seen seem to show it is roughly a wash on performance between the 2 stats.

 

 

Enterprise level metrics show superior correlation to results as they normalize for leverage. P/E and for that matter book/market screens give an "unfair advantage" to levered up firms. Finally book screens don't seem to work well on mid-large cap stocks in practice.

 

 

Return on Capital seems to add some juice, as Greenblatt claims in the Little Book.  The Magic formula ranks stocks on a 50/50 factor of ROC and EBIT/EV... but, you should know that Tobias Carlisle contends that the cheapest value decile stocks, ranked by ROC, should outperform the seemingly random 50/50 factor that Greenblatt has chosen.

 

At some point of course, over fitting may be an issue, but I suspect Tobias is closer to the truth, hence my comment on XOM.

 

 

Perhaps we should move this discussion to another thread.  I do think it would be valuable to discuss apples/apples metrics though.  I have noticed quite a bit of confusing ratios that cross compare firm, value, and equity level metrics.  Each metric can of course be useful, but only as long as you are comparing apples to apples, if you follow what I mean.

 

EDIT: Oops...I realize you may just be looking for the XOM EBIT/ev yield?

 

I use this metric a lot as a screen for companies to monitor/check out.  Maybe layer on a subjective opinion on management and get really interested if there is a catalyst.  That's what put me on to OXY to begin with.  CVX and XOM were ranked highly as well. 

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I cover the stock for my firm - Buffett must've seen my recent report rating it a buy with a 16% projected 5y IRR :)

 

XOM is the Berkshire of big oil - not a care in the world for quarterly results, focus on the extreme long term and high roc, minimal debt and laser-like capital allocation.

 

I've long wondered why BRK hasn't owned this. Not sure why WEB wasn't buying in 2010 when it was below $60....not much has changed since then save the share count.

 

Also have wondered why BRK doesn't have MCD has a top holding. Perhaps just a matter of time.

 

Lmao

 

Nice analysis.

 

You, of course, have never picked a losing stock in your life. ;D

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Of course I have, but I've never bragged about Buffett (or any other top investor) buying a stock because of my analysis. His analysis, frankly, was quite garbage.

 

And that line about MCDs made my day. What a clown.

 

Of course hindsight is 20/20 eh. But to invest in companies with those fundamentals..how can you call yourself a value investor and do that I do wonder.

 

Pretty sure that was a joke about Buffett reading his analysis.

 

I don't get how he's a clown for wondering why Buffett doesn't own MCD.

 

So basically you chastise Buffett for investing in XOM as well, with the line "how can he call himself a value investor"?

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Of course I have, but I've never bragged about Buffett (or any other top investor) buying a stock because of my analysis. His analysis, frankly, was quite garbage.

 

And that line about MCDs made my day. What a clown.

 

Of course hindsight is 20/20 eh. But to invest in companies with those fundamentals..how can you call yourself a value investor and do that I do wonder.

 

Pretty sure that was a joke about Buffett reading his analysis.

 

I don't get how he's a clown for wondering why Buffett doesn't own MCD.

 

So basically you chastise Buffett for investing in XOM as well, with the line "how can he call himself a value investor"?

 

+1

 

Plus, XOM is down about 5% (when you account for dividends) since bmichaud made his comment while oil prices have dropped about 55%. 

 

Such a terrible pick!!!

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Of course I have, but I've never bragged about Buffett (or any other top investor) buying a stock because of my analysis. His analysis, frankly, was quite garbage.

 

And that line about MCDs made my day. What a clown.

 

Of course hindsight is 20/20 eh. But to invest in companies with those fundamentals..how can you call yourself a value investor and do that I do wonder.

 

Pretty sure that was a joke about Buffett reading his analysis.

 

I don't get how he's a clown for wondering why Buffett doesn't own MCD.

 

So basically you chastise Buffett for investing in XOM as well, with the line "how can he call himself a value investor"?

 

+1

 

Plus, XOM is down about 5% (when you account for dividends) since bmichaud made his comment while oil prices have dropped about 55%. 

 

Such a terrible pick!!!

 

lol

 

It's so ridiculous to see a guy with 23 posts come on here and start throwing insults to long standing members. Not to mention the criticism isn't even deserved in this case.

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Not only was it a joke (what anonymous online medium isn't primarily) XOM literally could not have been a better "value" investment with oil down almost 50%.

 

And since we are using 20-20 vision, please go back to late the 2013/early 2014 Sandridge Energy (SD) thread for my "analysis" on why DVN was a far and away superior investment to SD at the time given the downside protection its balance sheet and valuation would provide in this environment...

 

Honestly don't even know what to say about McDonalds LOL.

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YES because the more you post, the more correct you are...

 

 

No, but:

 

1) I thought it was fairly obvious that bmichaud was joking re: Buffett taking his advice and recognising that would have helped you avoid irritating people when you (I hope) didn't intend to.

 

2) slagging off someone else's analysis without providing any of your own doesn't earn you a lot of respect in most places (especially here, where many of us have come to respect bmichaud's thoughts).

 

P

 

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So basically you chastise Buffett for investing in XOM as well, with the line "how can he call himself a value investor"?

 

Given how Buffett sold out his XOM stake, I don't think I would be the only one chastising him for the purchase...

 

 

On second thought, you're right on this one. How the hell Buffett goes around claiming to be a value investor after daring to invest in a horrendous business such as XOM, I don't know. That Buffett is the greatest value investor of all time is the greatest misconception of modern times. The man is an outright scam.

 

Disclosure: Short XOM and BRK.A

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