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Suncoast Equity Management: Bottom-Up Approach with a Focus on Cash Flow and Low Liabilities

|Includes: Berkshire Hathaway, Inc. Cl B (BRK.B), CL, PEP

The Suncoast Equity Management (NYSE:SEM) model examines the workings of individual companies to determine whether or not they would be good fits for the portfolio. They examine cash flows, debt and more before deciding whether or not to invest in a particular equity.

One position they’ve deemed appropriate for their model is Berkshire Hathaway Inc (NYSE:BRKB). Warren Buffet is widely known as a conservative investor. Berkshire Hathaway, his insurance underwriting company, invests in a wide variety of industries and companies. Their net revenues and earnings per share have increased since 2009 as has their cash flow. Their liabilities have increased, but not by a large percentage. The stock price has been steadily increasing since their February 2009 lows.

Another position in the Suncoast portfolio is Pepsico Inc (NYSE:PEP). Pepsico has been a leader in the soft drink industry for a great number of years. Pepsico has an interesting income statement. They show increased revenue in 2009 as well as a decrease in operating expenses—something not always accomplished easily. Their earnings per share has increased and their liabilities were the same in 2009 as they were in 2008. They also managed an impressive increase in cash flow in 2009.

Lastly, let’s take a look at Colgate-Palmolive Co (NYSE:CL). Colgate-Palmolive is one of those companies that provides consumers with such basic needs products that they can withstand an economic downturn relatively easy—unless consumers become so desperate that they turn away from name brand products. The company’s revenues have increased while operating expenses decreased; their cash flows have increased—and all of that fits in with the desired Suncoast company model. Their short term debt increased by a large percentage in 2009, as did their overall liabilities.

Disclosure: Model Manager holds positions in all three