Tesla Is Going To Embarrass Warren Buffett
“I’ll meet you at Pilot” my future wife said to me before hanging up the phone.
She was explaining to me how to get to her parents’ house. (This was before our phones were a GPS device.)
But by meeting me at the Pilot gas station, I knew exactly where that was.
In the town she grew up in, it was a local landmark. Right off the highway, Pilot always had the cheapest gas and was a spot everyone knew of.
That was over 10 years ago, though.
Now it’s just another gas station along the Interstate 40/Interstate 85 corridor in the middle of North Carolina.
However, even though it is just one of many gas stations with competitive gas prices across the country, legendary investor Warren Buffett felt the value was now ripe for an investment.
Last Tuesday, he announced his company, Berkshire Hathaway, would buy a 38.6% stake in Pilot Flying J, which operates the little truck stop I was meeting my future wife at.
To me, he is clearly going against one of his investing rules — never buy a stock you are not comfortable owning for 10 years.
And if you typically follow Buffett’s investments, this is one you should pass on. Here’s why.
The Oracle of Omaha
I have a lot of respect for the Oracle of Omaha. Who wouldn’t? He is the world’s third-richest person, and his success story is one of the greatest.
Many investors idolize him and simply buy whatever he buys.
However, I think he is making a mistake on his latest acquisition, Pilot Flying J.
It actually goes against one of his main rules, if you ask me.
I have used his No. 1 rule before, which is to never lose money, but he has a few other rules to invest by. One of them is to never buy something you don’t want to own for 10 years.
That’s his investment time frame in a nutshell. “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”
But Buffett’s latest acquisition is one I am uncertain about in just five years, and I question its existence 10 years from now.
Still, that hasn’t stopped investors from chasing his trade.
TravelCenters of America LLC (Nasdaq: TA) jumped 10% on the news, without even knowing the financial details of the transaction. That’s partly because the announcement of the Pilot acquisition mentioned Berkshire Hathaway’s capital and ability to expand, and TravelCenters may be one acquisition it is eying.
However, I doubt the usefulness of a truck stop/gas station in a future that is going electric and self-driving.
Going Electric
I find it extremely ironic that Buffett made this acquisition in the same month that Tesla planned to unveil its electric, self-driving semitruck. Granted, it is several years away from being operational, but the fact remains that in five years, almost all of the new cars being released will be electric, as indicated by the major automobile manufacturers.
I’m sure Buffett has thought about this, and still finds the real estate that Pilot owns to be a worthy acquisition. But to me, in just five years this is a company that will be searching to find its place in a world that is going electric and autonomous.
Does Pilot just become a place to stop on long trips and use the restroom? Somewhere to get junk food? Or will it be branded as a completely different use? I don’t know.
But I do know that when major manufactures like Ford, General Motors and BMW make the shift over the next few years to an almost entirely electric and automatic fleet, the amount of charging stations will multiply. And I may be five years off, but that brings up Buffett’s 10-year time frame, and I don’t know what a gas station will be like in 10 years.
I just know it won’t be your typical gas station anymore. Because instead of having to stop at a gas station before you get home, you’ll simply charge up at your house.
And instead of having to stop for gas after a 300-mile trip, you’ll simply pull into the hotel and charge up while you stay there.
So this is not an investment I would want to own for the next 10 years. And I think trading TravelCenters is a risky bet at the moment too.
If you buy it, you’re hoping Berkshire Hathaway has its sights set on that company. Because if it doesn’t, TravelCenters will likely fall back. But betting against it is too much of a risk because of the possible acquisition.
For now, this is simply not the investment to follow Buffett on. And I don’t say that often.
@[Gary Anderson](user:4798), you are an expert in this space. What do you think about this?
I don't think the public will flock to electric cars. I don't think it will happen. If it happens, there will be a major backlash when people find out these cars were created to ultimately keep the public from free travel and free access to our roads.
Innovations are being made in this space all the time. I recently read an article about plans to build roads which will actually charge #ElectricVehicles as they drive on them. That could happen sooner than you think, and if so, charging stations will be completely superfluous. And #Buffett will have made one of his rare mistakes. $TA $BRK-B
I wouldn't be so quick to dismiss #Buffett's pick. Could be that he knows something we don't. He's certainly right more often than he's wrong! $TA $BRK-B
The Truck stops make all their money on Food and other trucking services. The cost of owning an electric truck will be unaffordable for at least 10 years.
I don't follow your logic @[Spartan Trader](user:54114). The people who own trucks stops are not the same people who own the trucks. The truck owners are the customers at Truck Stops.
The Truck Owners are not going to just switch over and buy an entire new fleet of trucks. Additionally, The energy component of earnings is the smallest part of net income. Travel Centers and Convenience Gas Stations make money from all other services which have higher margins.
csnews.com/whats-so-shocking-about-warren-buffetts-investment-pilot-flying-j
TA won a lawsuit against FLT and if they dont appeal by October 12th then TA will have a 45-50 cent one time addition to earnings and regardless a 7.5 cent benefit to earnings each quarter.
realmoney.thestreet.com/.../travelcenters-america-gives-me-reasons-not-give-its-shares
Additionally, mergers in the space have been beyond hot with 711 Circle K (Couche Tard), and others buying independents and public companies (CST) at record levels and valuations.
www.cspdailynews.com/mergers-acquisition-growth
https://csnews.com/mergers-and-acquisitions
Finally, it comes down to valuation.
Reported Book value of 13.19 per share
TA-Just since 2011. Real estate is up a ton since 2011 and it does not take into effect real estate and other assets owned pre 2011.
TA has 318M in Debt at around 8 percent and 150 from parent company at 0 percent.
http://bit.ly/2xP7EX2
Acquired and Developed Sites
Since the beginning of 2011, when we began our growth and acquisition program, to June 30, 2017, we have invested $895,324 to develop, purchase and improve travel centers, convenience stores and standalone restaurants.
For the 12 months ended June 30, 2017, these investments produced site level gross margin in excess of site level operating expenses of $103,499, which, on a sequential basis, was $1,043, or 1.0%, more than the site level gross margin in excess of site level operating expenses for the 12 months ended March 31, 2017.
We believe that our investments require a period after they are developed or acquired and upgrades are completed to reach expected stabilized financial results, generally three years for travel centers and one year for convenience stores.
We acquired 37 travel centers during the 2011 to June 30, 2017, period. Of these stores, 36 are included in the "Travel Centers Segment Same Site Operating Data" for the six months ended June 30, 2017 and 2016. As of June 30, 2017, we have invested $313,368 (including the cost of improvements) in these 36 locations, and these locations generated $53,214 of site level gross margin in excess of site level operating expenses during the 12 months ended June 30, 2017. We also developed four travel centers for a total investment of $95,948, and these locations generated $4,890 of site level gross margin in excess of site level operating expenses during the 12 months ended June 30, 2017 ; we operated these locations on average for less than a full year as of June 30, 2017 (one opened in each of January, March and May 2016 and March 2017).
We acquired 228 convenience stores during the 2013 to June 30, 2017, period. Of these stores, 199 are included in the "Convenience Store Segment Same Site Operating Data" for the six months ended June 30, 2017 and 2016. As of June 30, 2017, we have invested $394,350 (including the cost of improvements) in these 199 locations, and these locations generated $33,530 of site level gross margin in excess of site level operating expenses during the 12 months ended June 30, 2017. The remaining 29 locations were acquired by us in 2016 for a total investment of $48,996 (including the cost of improvements), and these convenience stores generated $3,207 of site level gross margin in excess of site level operating expenses during the 12 months ended June 30, 2017. Some of the 29 convenience stores we acquired during 2016 were fully or partially out of service while being renovated during the 12 months ended June 30, 2017.
We acquired one standalone restaurant during 2015 and 48 during 2016 (38 of which were operated by franchisees), and in 2017 acquired six of those 48 from one of our franchisees. As of June 30, 2017, we have invested $41,976 (including the cost of improvements) in these 49 locations, and these locations generated $8,692 of site level gross margin in excess of site level operating expenses during the 12 months ended June 30, 2017.
Since June 30, 2017, we completed the acquisition of a travel center from one of our franchisees for a purchase price of $13,050.
@[Spartan Trader](user:54114), good points but don't you think that as more #ElectricCars are on the road, that auto-related industries will learn to adapt?
And while truck owners won't buy a new fleet overnight, I do expect that as prices come down and efficiencies increase, they will slowly replace trucks with newer electric equivalents on an as needed basis.
Elon is having problems producing electric cars in mass so I do not expect electric trucks to be in abundance for many many many years. Oil will come down in price if the demand for oil changes which will make it less beneficial to own electric.
TA deserves a discount due to its relationship with HPT and RMR but not not a 60 percent discount to book when CASY is trading at 3X Book
Excellent points Spartan.
Thanks for the lengthy clarification Spartan Trader. Much appreciated.
I agree that electric vehicles are still a while away. But 10 years is a long time. Even a small breakthrough in efficiency could make them affordable long before then.
What's to stop #Pilot from being a charging station itself? I would think that during the transition years, many places would offer both gas and electric charging to be able to service both vehicles.