Companies Warren Buffett invested between 1998 and 2001 (Part 4)

Companies Warren Buffett invested between 1998 and 2001 (Part 4)

Johns Manville: This was a great company in great financial shape until it sold a ton of products loaded with asbestos that made people deathly ill. These people sued Johns Manville by the tens of thousands, pushing it into bankruptcy. The bankruptcy court put 78% of the ownership of the company into a trust in settlement of the lawsuits. Even though the company was making a great deal of money selling nonasbestos products and the stock was publicly traded, investors weren't very interested. Tech stocks were the ticket of the day, not stodgy old insulation companies.
In 2000, Berkshire purchased Johns Manville, the nations's largest manufacturer of insulation products, commercial and industrial roofing, filtration systems, and fiber mats. It paid $1.8 billion for the entire company against pretax earnings of $343.75 million. That equates to a 19% initial pretax return on Berkshire's money. From 1990 to 2000, John Manville grew its per share earnings at an annual rate of 9.5%, which is better than inflation. Buffett could argue that Berkshire bought a bond with an initial pretax return of 19% that would grow at an annual rate of 9.5%.

Price paid: $1.8 billion for entire company
Earnings: $343.75 (pre-tax earnings)
Initial return: 19%
Per share earnings annual growth rate: 9.5%

Justin Industries: Justin Industries makes Acme Bricks and brand-name western boots like Tony Lama. Buffett bought the entire company for $570 million against pretax earnings of approximately $51 million, which equates to a pretax return of approximately 8.9%. Earnings have been growing at 16% a year for the last 10 years. Buffett could argue that he just bought a bond that paid a pretax return of 8.9% that would increase at 16% a year. It beats the static 6% pretax return that treasuries were paying.

Price paid: $570 million for entire company
Earnings: $51 million (pretax earning)
Initial return: 8.9%
Per share earnings annual growth rate: 16%

La-Z-Boy Inc: La-Z-Boy is the number one manufacturer of upholstered furniture in the United States and the number one seller of recliners in the world. This is a Berkshire holding. We believe Buffett started buying La-Z-Boy after the market crashed in February 2000 for $14 a share, on earnings of $1.46 a share. As of June, 2001, it trades at $19 a share. It has been growing per share earnings at 15.7% a year. Expect Buffett to continue buying if he can get it cheap.

Price paid: $14 a share
Earnings: $1.46 a share
Initial return: 10.4%
Per share earnings annual growth rate: 15.7%

Liz Claiborne: This is America's number one seller of clothes and accessories for the career woman. Its clothes are sold in department stores and in its 275 retail outlets. It also makes Donna Karan jeans and Lucky Brand dungarees. It's been in business for more than 20 years. The durable competitive advantage is its brand name, which it stitches to clothing made cheaply in another part of the world.
In 1998, as momentum investors fled low-tech businesses for high-tech businesses, Liz Claiborne saw its stock tumble from a high of $53 a share to a low of $27. Buffett stepped into the market, buying nearly 9% of the company. In 1998, Liz Claiborne earned $2.57 a share against an asking price of $27, which equates to an initial return of 9.5%. By 2000 it was earning $3.43 a share, which equates to a 12.7% return on his initial investment. The longer you stay, the better it gets.

Price paid: $27 a share (Down from high of $53)
Earnings: $2.57 a share
Initial return: 9.5%
Per share earnings annual growth rate: 12.7%


Related articles:
Companies Warren Buffett invested between 1998 and 2001 (Part 1)
Companies Warren Buffett invested between 1998 and 2001 (Part 2)
Companies Warren Buffett invested between 1998 and 2001 (Part 3)
Companies Warren Buffett invested between 1998 and 2001 (Part 4)
Companies Warren Buffett invested between 1998 and 2001 (Part 5)