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The Revised Coffee-Can Portfolio: What’s in Store for 2014?

The portfolio performed decently in 2013, but it didn't excel

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Diageo (DEO)

I was hopeful that Diageo was going to be a part of the Beam (BEAM) acquisition given that it doesn’t have a large presence when it comes to Tequila or Bourbon. I guess it didn’t want to pay 20 times EBITDA as Suntory Holdings has agreed to do, and who could blame DEO? It’s still the world’s biggest spirits company, after all.

Besides, since the new year DEO has already announced two premium tequila acquisitions, and more are on the way to complement its existing Don Julio brand. I also wouldn’t be surprised if it added to its bourbon and Irish whiskey categories through small, bolt-on acquisitions.

Even though it’s down 3.5% year-to-date through January 24, I still think DEO stock will achieve a 20% return in 2014.

Berkshire Hathaway (BRK.B)

I picked both Berkshire and Diageo to perform last year, and while Buffett’s return was much more palatable than Diageo’s, both still underperformed the SPY.

Questions regarding Buffett losing his touch seem to have subsided thanks to index-beating results from both his hired guns, Todd Coombs and Ted Weschler, who have outperformed the S&P 500 each year since joining Buffett.

While Berkshire has less cash today than in 2012 ($42 billion), it still has enormous buying power should Buffett want to bag the elephant of a deal he often muses about. Whether a public or private company, look for it to be closely controlled, quite likely a family business.

I’d like to think the families that control Brown-Forman (BF.B) would sell to Berkshire, but given McLane Company’s investments in liquor distribution I doubt the deal is doable. If it were up to me I’d sell McLane, buy Brown-Forman and use some of the proceeds to make strategic, add-on investments.

Is any deal north of $20 billion going to happen in 2014? I doubt it. But even without a massive deal I’m confident Berkshire will have another solid year.

Strayer Education (STRA)

STRA stock hasn’t traded this low since March 2001. While it’s not the cheapest of the education stocks based on enterprise value as a multiple of EBITDA, its current valuation by almost all financial metrics is significantly lower than its historical average, not to mention cheaper than the S&P 500.

Strayer is in the midst of a cost-cutting initiative that will see a 20% reduction in the number of employees delivering $50 million in annual operating cost savings. Strayer is still free-cash-flow positive despite the drastic drop in enrollment.

Anything it can do to make its business more efficient is going to effect STRA stock in a good way. For this reason, I believe 2014 is the year it gains back some of its losses.

Coffee-Can Portfolio: Bottom Line

Once again, I see the revised coffee-can portfolio outperforming the SPY by 300 basis points in 2014. We’ll check on it in April to see how it’s doing.

As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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