In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche
Cisco Systems is a value investment for a very simple reason. It is an infrastructure company: one of those great businesses that you do not see but is all around you, much like the pipeline and supply chain companies that Warren Buffett owns.
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If you are looking for a classic Warren Buffett-style value play, Sysco is certainly worth a look. It has many of the attributes Uncle Warren loves: It is not sexy, but it has a steady, widespread business that generates a lot of cash, and that business is growing.
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Buffett’s classic theory is that insurance companies can generate a lot of float from the premiums. The idea is that large numbers of people send in premiums every month, so as long as the amount of payments taken in exceeds the claims paid out, the insurer has a big pile of extra cash it can tap.
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If the U.S. economy does tank because of the situation in China, expect LendingTree to be one of the first stocks to go down and go down hard. This stock is sitting on very shaky ground that will soon collapse.
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Despite the risks, the U.S. credit industry is capable of generating a lot of cash, which can lead to high levels of float. Float is Warren Buffett’s term for a constant stream of revenue or stockpile of cash that a company can tap or borrow against at any time. Classic examples of float include credit card fees and insurance policy premiums.
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The only way that this situation could be avoided would be if Amazon’s revenue were to grow as large as Walmart’s. The problem with that is that Walmart reported a TTM revenue of $485.62 billion on July 31, 2015, or nearly five times that of Amazon’s, making it the world’s largest retailer by far.
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Therefore Lending Club looks like a successful company but not a value investment. Its platform is achieving a lot of growth, but it is not making money the way PayPal is. This indicates that its business model could be flawed or at least seriously limited, so you should stay away from it for now
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If you want to take a gamble on a tech company that could be the next Google, PayPal could be it. PayPal’s revenue was growing at a rate of 14% in the first quarter of 2015. PayPal’s international revenue grew at a rate of 52% in 2014, the volume of mobile payments it processed grew by 58% and its total payment volume grew by 26%.
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As you can see, many of the biggest names in American retail are still missing from the list, including the nation’s largest supermarket operator, Kroger, which owns such chains as Ralphs, Fred Meyer, Smiths, Harris Teeter, and King Sooper’s. All of the dollar store operators; Walmart, the largest retailer in the universe; Amazon.com; most department stores; and all of the hardware and home improvement stores are also missing.
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The reality is you are getting a 2005-style jumbo mortgage lender (with other odd high risk loans) funded primarily by high cost brokered deposit.”
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