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April 25, 2005
Buffet Likes BUD
The word is out: Buffet likes Budweiser - or at least the parent company’s stock. Berkshire Hathaway reported in a press release that the company has acquired a “significant stake” in Anheuser-Busch. News sent the stock soaring and the Buffet-ologists scrambling.
The purchase makes a lot of sense and fits with the themes echoed in Procter & Gamble, Gillette and Coca-Cola. These companies are not that exciting, but they do generate large amounts of free cash flow, have well established consumer brands, wide moats and strong balance sheets.
Judging from the price chart, it is likely that investors can buy BUD at the same price or less than Buffet’s average. The stock declined from 55 to 45 over the last 9-10 months and my guess is that Buffet’s average is around 50. Also notice that the stock got a good bounce off support at 45. This level acted as resistance in 2001 and then turned into support with tests in Jan-02, Jul-02, Mar-03 and Apr-05. BUD doesn’t move a lot as the stock traded between 43.65 and 55 for over three years. As such, it makes sense to buy near support and not at resistance.
Keep in mind that this is a long-term position. Don’t expect this stock to double within a year. It is possible, but highly unlikely. Buffets looks upon this investment as he does all of his investments: as if he is buying the whole company or the whole business. Therefore, his time horizon is likely to be many years.
Posted by Arthur B. Hill at April 25, 2005 11:00 AM