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April 25, 2005
Buffet and Pier 1
Warren Buffet is certainly a legendary investor, but his approach requires patience and sometimes being wrong for extended periods.
In an SEC filing dated 30-Jun, Berkshire Hathaway disclosed that it had purchased 8 million shares of Pier 1 Imports (PIR), the home furnishing retailer. In contrast to alcoholic beverages (BUD), soft drinks (KO) and consumer products (PG), this is a cyclical business prone to economic fluctuations.
My wife and I like Pier 1 stores and can always find something to buy. However, that does not change the cyclical nature of the business. Should the economy and broader market tank, PIR will go down with the ship. In contrast, non-cyclical businesses like alcoholic beverages, soft drinks and consumer goods will hold up much better.
Looking at the price chart, the stock is bad shape for a cyclical. The blue line shows when the SEC filing hit the press and the stock spiked higher. However, a bad quarter hit the stock in August and it moved to a new 52-week low. There was a rebound with the broader market and the stock stalled in the first quarter of 2005. With another bad quarter, the stock gapped down, broke support and is close to its 52-week low. More importantly, the stock is underperforming the broader market and shows poor relative strength. As long as this gap remains unfilled (18), sellers are clearly in control and I would avoid this stock, even if I could buy it cheaper than Buffet.
Posted by Arthur B. Hill at April 25, 2005 11:01 AM