(Bloomberg News circulated the following story by David Pauly on February 26.)
If only you had bought Wal-Mart Stores Inc. instead of Merrill Lynch & Co. Or Burlington Northern Santa Fe Corp. rather than Citigroup Inc.
Putting faith in simple things such as discount stores and railroads might have saved you from the losses on complex subprime mortgage securities that plague investment firms and banks.
Wal-Mart shares in 2008 have risen 4.8 percent, while the stock market, as measured by Standard & Poor’s 500 Index, has dropped 8.6 percent.
The discounter is being helped by the U.S. economic slump because its low prices for general merchandise and food are especially attractive for consumers trying to make ends meet.
Wal-Mart said last week that fourth-quarter profit rose 4 percent, to $4.1 billion, or $1.02 a share. Compare that with Merrill Lynch’s $9.8 billion loss in 2007’s fourth quarter after accounting for its mortgage losses.
Burlington Northern has a 5.9 percent stock market gain in 2008. The carrier last week said its profit for 2008 will increase at least 10 percent from last year’s $5.10 a share, and rival Union Pacific also forecasts a solid profit. For their part, Citigroup shareholders wonder if the bank still has more mortgage losses to write off.
Investor Warren Buffett has taken a shine to Burlington Northern. His Berkshire Hathaway Inc. investment company, which in Utah operates Rocky Mountain Power and home furnisher RC Willey, owns 18 percent of the railroad’s stock.
Buffett recently became the largest shareholder in Kraft Foods Inc., which sells such products as Maxwell House coffee and Oscar Mayer meats. Kraft shares leaped as much as 6.9 percent on Feb. 15 after the disclosure that Berkshire had taken an 8.6 percent stake. Kraft shares are still down 5.5 percent so far in 2008.
Hewlett-Packard Co. might not appeal to Buffett, who abhors high tech, but the personal computer company also sells tons of printers, which are still its most-profitable business (sell them a printer and they buy ink cartridges forever). Shares are 6.6 percent higher than they were before it reported a 38 percent rise in profit for the quarter ended Jan. 31, or 80 cents a share. HP shares are still down 7.2 percent for the year but it might be able to finesse the weak domestic economy because 69 percent of its sales come from outside the U.S.
Down-to-earth investors also have done well with Molson Coors Brewing Co., the product of a 2005 merger of Canadian and U.S. companies. Profit in the fourth quarter 2007 jumped 74 percent, to $173 million, or 95 cents a