Joe Ponzio

Why Buffett Loves Johnson & Johnson

Hi Sridhar,

To me, there is no such thing as a "growth" stock or a "value" stock - they are joined at the hip. I understand that Wall Street likes to separate the two, but don't we expect all of our investments to <i>grow</i>... in </i>value</i&... Why would you invest in any business that didn't?

The MOS depends on the moat of the business. A wide moat, industry leader like JNJ can be purchased with a 25% MOS. A weak- or no-moat business should be purchased with a 50% or more MOS, if at all. So, what do you think of Starbucks' moat? I'd say it is good, but hardly impenetrable. McDonald's is already trying to encroach on it, offering Premium Coffees. I'd want a 50% MOS on Starbucks. If I can't get it, there are plenty of other companies that might be worth my investment dollars. Remember, your goal is not to own Starbucks - it is to grow your money. <strong>Put your dollars where you'll get the best value</strong>.

CROIC is not a function of the size of a company, it tells us how well management is employing the capital it has. It is essentially a function of interest rates. If businesses have to borrow at 8% and CROIC is at 6%, our company had bad debt that is eating up cash. On the other hand, a 15% CROIC would indicate that management is using debt as an asset.