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Saturday, December 29, 2012

Who is Warren Buffett?

Everybody who is remotely familiar in investing have mostly likely heard or read the name Warren Buffett. Most people know and consider him as the most successful investor of this century. An American investor, business magnate, and philosopher, Warren Buffett is the chairman and CEO of multinational holding company Berkshire Hathaway.

Financially Adept

Warren Buffett was born on August 30, 1930 in Omaha, Nebraska, the second of three children and only son of a US congressman. When he finished high school, his yearbook picture read: "Likes math; a future stockbroker."

Buffett has displayed an interest in saving and making money even at a young age. He went door-to-door selling chewing gum, refreshments, stamps newspapers or magazines and worked in his grandfather's grocery store for a while. He filed his first income tax at the age of fourteen and took a deduction claiming expenses for the use of his bicycle and watch when delivering. His interest in the stock market started at the age of ten. He visit the New York Stock Echange or spend time in a nearby stock brokerage. The first documented stock he bought was of Cities Services preferred shares, buying three shares at the age of 11.

After graduating in college with a business administration degree, he decided to enroll in Columbia Business School after learning that famous securities analysts Benjamin Graham and David Dodd taught there. He would be greatly influenced by Graham, also an author of "The Intelligent Investor" and "Securities Analysis", two books which are considered the holy bible of investing.

Business and Employment

Between 1951 to 1969, Buffett has worked as an investment salesman, security analyst, and professor before eventually starting Berkshire Hathaway Inc. in 1970. By 1960, he had seven partnerships operating: Buffett Associates, Buffett Fund, Dacee, Emdee, Glenoff, Mo-Buff and Underwood. The following year, he was able to pool fund and invested most of it in Sanborn Map company.  He explained that in 1958 Sanborn stock sold at only $45 per share when the value of the Sanborn investment portfolio was $65 per share. This meant that buyers valued Sanborn stock at "minus $20" per share and were unwilling to pay more than 70 cents on the dollar for an investment portfolio with a map business thrown in for nothing. This earned him a spot on the board of Sanborn. Eventually, he consolidated his partnerships and had over $1,025,000 remaining for himself.

Berkshire Hathaway

Buffett invested in and eventually took control of a textile manufacturing firm, Berkshire Hathaway. Buffett's partnerships began purchasing shares at $7.60 per share but later on had to pay $14.86 per share as he aggressively continued to purchase. The company had working capital of $19 per share. This did not include the value of fixed assets (factory and equipment). Buffett took control of Berkshire Hathaway at the board meeting and named a new president, Ken Chace, to run the company. 

Buffett announced his first investment in a private business under Berkshire — Hochschild, Kohn and Co, a privately owned Baltimore department store. In 1967, his company paid out its first and only dividend of 10 cents. In 1970, as chairman of Berkshire Hathaway, Buffett began writing his now-famous annual letters to shareholders. However, he lived solely on his salary of $50,000 per year, and his outside investment income. In 1979, Berkshire began the year trading at $775 per share, and ended at $1,310. Buffett's net worth reached $620 million, placing him on the Forbes 400 for the first time. Also in the same year, Berkshire began to acquire stock in ABC. Capital Cities announced $3.5 billion purchase of ABC on March 18, 1985  which surprised the media industry, as ABC was four times bigger than Capital Cities at the time. Buffett helped finance the deal in return for a 25% stake in the combined company. He became a billionaire on paper when Berkshire Hathaway began selling class A shares on May 29, 1990, when the market closed at $7,175 a share. His company is still aggressively in pursuit of new businesses to invest in or acquire.

His Legacy

Warren Buffett have had a number of recognition under his name. In 1999, he was named the top money manager of the Twentieth Century in a survey by the Carson Group, ahead of Peter Lynch and John Templeton. In 2007, he was listed among Time's 100 Most Influential People in the world. In 2011, President Barack Obama awarded him the Presidential Medal of Freedom. Most recently, Buffett, along with Bill Gates, was named the most influential global thinker in Foreign Policy's 2010 report. He also became famous by his annual letter to shareholders, giving them updates and insights on the current position of the company and the economic outlook in general. Often referred to as "The Oracle of Omaha", Warren Buffett has truly been influential not only as an investor, but also as an inspiration for other generations. 

Saturday, December 22, 2012

Energy Development Corporation

Company Profile

Energy Development Corporation (PSE:EDC) was incorporated and registered with the Securities and Exchange Commission (SEC) on March 5, 1976 to primarily engage in the business of exploring, developing and operating geothermal energy projects in the Philippines. It began commercial operations with the commissioning of its first steamfield in 1983, and expanded to provide geothermal drilling and consultancy services. EDC became a subsidiary of Red Vulcan Holdings Corporation on November 29, 2007. 

EDC operates 12 geothermal steamfields in five geothermal service contract areas where it is principally involved in the production of geothermal steam for sale to the National Power Corporation (NPC), privately-owned distribution utilities, large industrial customers, pursuant to power purchase agreements and power supply agreements. EDC also has drilling activities in Papua New Guinea. The Company is also into hydro power generation through its 60% equity interest in FG Hydro which operates the Pantabangan and Masiway Hydroelectric Power Plants in Nueva Ecija. The Company likewise provides drilling services to the Lihir Gold Limited in Papua New Guinea.

In September 2011, the SEC approved the incorporation of Bac-man Energy Development Corporation and Kayabon Geothermal, Inc. as wholly-owned subsidiaries of EDC Geothermal Corporation, to carry on the general business of generating, transmitting, and/or distributing energy derived from any and all forms, types and kinds of energy sources for lighting and power purposes and whole-selling the electric power to power corporations, public electric utilities and electric cooperatives.

Income and Operations

EDC's sales volume are primarily derived from Leyte, Mindanao, Tongonan I, and Palinpinon geothermal power plants and Pantabangan-Masiway hydro power plants. Their main customers are the National Power Corporation, electric cooperatives and industrial customers in the Visayas region and the Wholesale Electricity Spot Market. The electricity generated by the Company’s geothermal power plants is transmitted to customers i.e., distribution utilities, electric cooperatives or bulk power customers by the NGCP through its high voltage backbone system.

On May 5, 2010, BGI, the Company’s wholly-owned subsidiary through EDC Geothermal Corporation, submitted the winning bid of US$28.25 million for PSALM’s auction of the 150 MW Bac-Man Geothermal Power Plants located in the towns of Bacon, Sorsogon Province and Manito, Albay Province. The power plants were turned over to BGI in September 2010, and are currently under rehabilitation to restore capacity and reliability.

Stocks Valuation

EDC currently trades at 16.6x PE. The stock has had unsteady price movements, which primarily depended on news on its Bacman plant rehabilitation.

What's to Like?

For awhile it looked as if EDC was solely dependent on its Bacman plant to drive future sales growth. A closer look on their financials gives us other projects that can potentially make up for the delay in rehabilitation of Bacma plant. The Nasulo steam field has an available capacity of 20MW and is expected to be operational by 2Q14. The there is also the 86MW Burgos Wind project located in Norther Luzon.

Why Get Cautious?

Delays in the rehabilitation of Bacman power plant raises questions on the ability of management's commitment to address the issue. Barring further delays, the plant is now expected to be fully operational by 2Q13, one quarter later than the original target.

Update: In January, 2013, EDC resumed commercial operations in Bacman unit 1 and 2. By the end of February, the two units had to be shut down again after a turbine blade was sheared of at the second unit, prompting EDC to take precautionary measures. At April 5, EDC disclosed that Unit 1 of Bacman power plant is up and running at 55-megawatt capacity. The company did not mention when the unit 2 operations will resume.    

Buffett Recommends...

EDC is a pure play on renewable energy since all of its power plants are renewable energy plants, making the company a major beneficiary of rising coal and oil prices. It does not offer a huge upside if Bacman plant encounters further delays. It would be more prudent to wait awhile until stock prices have substantially decreased or Bacman becomes fully operational before committing to invest long term.

Sunday, December 16, 2012

EEI Corporation

Company Profile

EEI Corporation (PSE:EEI) was incorporated on April 17, 1931 as a machinery and mills supply house for the mining industry. The Company eventually expanded into provisioning construction services and a broader range of industrial machinery and systems. EEI is a member of the Yuchengco Group of Companies, a conglomerate with interests in banking, financial services and property development.

EEI has been involved in the installation, construction and erection of power generating and transmission facilities, oil refineries, chemical production plants, cement plants, food and beverage manufacturing facilities, semiconductor assembly plants, road, rail and bridge infrastructures, and high rise landmarks. It also operates a steel fabrication plant.

Income and Operations

As of the end of third quarter 2012, EEI Corporation's consolidated net income registered at P728.37 million, up 25% compared to P581.53 million earned during the same period in 2011. Consolidated revenues were at P10.14 billion, 63% higher than P6.24 billion posted in the previous year.    

Stocks Valuation

EEI currently trades at 11.6x PE. Its stock price have seen an upsurge from P3.44 in the end of 2011 to P10 as of Dec. 14, 2012. That is 190.70% increase in just almost a year!   

What's to Like?

As of 3Q2012, EEI holds the contracts for large construction and development projects, including: Uptown Mall and BPO offices for Megaworld Corporation in Taguig; The Third Atrium Headquarters expansion for the Asian Development Bank in Mandaluyong City; The Green Residences of SM Development Corporation in Manila; The Asphalt Plant Facility for Petron Corporation; RCBC Savings Bank and Corporate Center in The Fort; JG Summit Naptha Cracker Plant for Daelim Philippines Inc.; and Maibarara Geothermal Power Plant for Petroenergy Resources Corporation to name some.    

EEI has prided itself in providing quality service and has built a good reputation in its 81 years in operations. They cater a very broad range of customers that make good profits on their own, so that the risk of default on collections would be very minimal. Not relying on a single large customer makes EEI so stable to invest on. It also has a global reach, owning 49% of Al Rushaid Construction Company Ltd. in Saudi Arabia and 100% of EEI Corporation (Singapore) Pte Ltd.      

Why get Cautious? 

While its revenues and net income continue to grow, its profit margin has actually declined from 11.57% to 9.5%. The decrease can be attributed to higher construction contracts. This is not necessarily a bad thing. It simply means that EEI has to bid a little higher than previous years for the contracts they want to have. Competition plays a major factor on this, with its possible emerging rival being Megawide Corporation (PSE:MWIDE). As long as they can operate near a 10% margin then it will not be a major concern.

Buffett Recommends...

Domestic construction is strong as seen in demand for high-rise buildings, electromechanical and industrial work. The government's public-private partnership projects are anticipated to boost the growth of construction industries in general, and EEI is well-positioned to take advantage of the favorable outlook. The demand for the stock is still high as it continues to post new highs and there may not be any major pullbacks in the stock price to consider as an entry point. Buying below P10 and investing until construction developments in the Philippines have substantially declined will be a very good strategy. 

Tuesday, December 11, 2012

Welcome to Buffett in the Philippines!

What if Warren Buffett started investing in stocks market in the Philippines?

What industry would he be interested in? What stocks would pass his criteria as a value investment? Which companies would he invest in?

If you have also asked yourself these questions we invite you to join us in exploring the greatest investor's investing strategies applied in the Philippine Stocks Market. Let us closely examine listed companies and analyze how it would fare using fundamental concepts and sound management. Let us discover which stocks offer potential upside and which ones would be too risky to take. 

Let us invest and make wise decisions together!

Go here to learn more about Warren Buffet.


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The information provided in our review may not be as relevant today given the time gaps and change in varying economic conditions. While we strive to account every business possibilities that may affect a company's profitability, this is not a recommendation to buy or sell these particular stocks. We cannot be held liable for any investment decisions made in consequence to our articles.