In Elio’s most recent article, he talked about the importance of using screens to find a list of interesting stocks and then doing further research to decide if they are right for you. I have been writing about stocks uncovered by the screen created by Stockopedia contributor Roland Head that looks to mimic the approach that Warren Buffett uses to choose stocks that are likely to be great compounders. The methodology is outlined in Roland’s article titled “Screening for Warren Buffett stocks: the ultimate strategy?”. So far I have covered Universal Store Holdings (ASX:UNI) (read here) and NZE listed Mainfreight (NZE:MFT) (read here) along with Dusk (ASX:DSK) (read here).
Today I am going to delve into agribusiness company Elders (ASX:ELD).
Buffett is focused on companies that have a sustainable competitive edge. This ensures that they will survive the tough times that inevitably come if you own a business for long enough. So far Elders have been around for 184 years. That fact alone provides a fair bit of comfort that they will still be here in 10 years time.
Of course, too much debt can threaten the existence of a company no matter how old it is. That almost eventuated during the global financial crisis when the company was burdened with over $1.4 billion in debt and went on an acquisition spree in a wide range of areas. A new CEO undertook a series of asset sales and brought the company back to a pure play agricultural company. Then Chairman Mark Allison, shifted into the role of CEO in 2014 and steadily rebuilt the company with a disciplined approach to return on investment and executing strategy.
The share price reacted savagely to the news that Allison would retire, when announced last November. $475 million in market value was wiped out just on that day and the share price has continued to slide, down 40% since that point.
Buffett likes to say, “invest in a company that any fool could run, because sooner or later one will.” Whilst the loss of a highly regarded leader is a blow, an orderly transition to a new leader is not necessarily a disaster, especially if the business is in good shape.
The inclusion in Roland Head’s Warren Buffett screener is based purely on…
