11/14 Kelly Letter Topics
Weekly market review
The bottom holds
Big bounce volume
Recession projections
The magic midpoint
LevMark Timer holds
Crocs is dying
Hope for Goldman
Importance of retest
Halfway through my discussion of the price-to-sales ratio in The Neatest Little Guide to Stock Market Investing, I compare Anheuser-Busch to Coca-Cola as each company stood at the end of 1995. From page 210:
...if you had bought each company, you'd have paid $5.16 for every $1 of Coke's sales, but only $1.68 for every $1 of Budweiser's sales. By this measure, Anheuser-Busch was the better buy. For curiosity's sake, let's see how each company fared in 1996. On December 31, 1996 Anheuser-Busch closed at $40 and Coca-Cola closed at $52.63. That's a one-year gain of 19.62 percent for Bud and 41.75 percent for Coke. This isn't a conclusive study, but does demonstrate that better bargains don't always come through in the short term. The word "always" should never appear in a discussion about the behavior of stocks.
However, take a longer look. Adjusting for splits, Anheuser-Busch closed 1995 at $14.47, Coca-Cola at $34.47. Anheuser-Busch closed 2001 at $44.72, Coca-Cola at $46.60. That's a six-year gain of 209 percent for Bud, but only 35 percent for Coke.
In other places in the book, I refer readers to Anheuser-Busch as an example of a strong company.
With time, strong companies get stronger and weak companies get weaker. The maker of Budweiser beer just keeps getting stronger. From the end of 2001 to yesterday's close, BUD gained a little less than 13%. Not great over a three-year period, but not awful given the gyrations of that time frame. What I'd like to highlight, however, is the amazing march of earnings increases the company has logged. To the tune of a picture being worth a thousand words, I present the following chart courtesy of Standard & Poor's:
Click the chart to see a larger image. The up arrowheads indicate an increase in earnings over the previous year. Pretty impressive march upward.
