The Buffett Lens

Well, howdy there, neighbor. If you've ever driven through the dusty plains of West Texas, you might have spotted those big oil rigs pumping away like stubborn mules in a field. That's a bit like what Diamondback Energy does—it's an independent outfit digging into the Permian Basin, focusing on those hard-to-get-at oil and gas reserves in formations like the Spraberry and Wolfcamp. Founded back in 2007, they've built a business around exploring, developing, and exploiting unconventional onshore energy, much like a farmer tilling a rich, stubborn soil that's been yielding crops for years. It's not glamorous, but it's the kind of steady work that can pay off if you pick the right plot of land and tend it well.

Now, let's talk about what makes this business tick, and how it lines up with the principles I've always preached about finding solid companies. First off, they've got a wide moat around their operation—think of it as a castle with high walls and a deep moat, keeping competitors at bay. Their moat score is a hearty 83.6 out of 100, thanks to a strong asset base and cost advantages. That means they've got prime real estate in the Permian, where they've locked in access to those oil-rich formations, and they operate efficiently, keeping costs down while others struggle. It's a reminder of that old saying: a good managerial record is far more about the business boat you get into than how hard you row. Diamondback's boat is in some pretty favorable waters here, with the Permian being one of the most productive oil fields in the country.

On the earning power side, they've shown consistent growth. Over the last eight quarters, revenue climbed from nothing to nearly $4 billion, and net income followed suit, hitting about $1 billion recently. Last twelve months, they racked up $15.3 billion in revenue and $4.2 billion in net income—that's the kind of steady progress that warms my heart. Their return on equity stands at 10.7%, with a five-year average of 7.9%, and they've done it without piling on debt like some folks do in a poker game. Their debt-to-equity ratio is a modest 0.42 times, which means they're not over-leveraged, avoiding those accounting gimmicks I always warn about. That's important because, as I said back in '79, the real test is achieving a high earnings rate on equity without undue leverage, especially in times when inflation can eat away at returns.

Management looks solid too—34.9% insider ownership tells me the folks running the show have skin in the game, much like our managers at Berkshire who own big stakes in what they oversee. Institutional ownership is high at 63.6%, but it's the insiders that really count for alignment. They've created extra value through smart operations, not just riding industry waves. Our job at Berkshire has always been to find talented managers and give them room to shine, and it seems Diamondback's team is doing just that, driving that 51% return on equity we saw in some of our businesses back in 1990.

But let's not get carried away—every business has its warts, and I wouldn't be honest if I didn't mention the risks. Oil and gas is a cyclical game, tied to the whims of energy prices, supply and demand, and global events. If oil dips too low, like it did during the pandemic, earnings can dry up faster than a puddle in the desert sun. There's also the environmental side—regulations and public sentiment can shift like the wind, and while Diamondback operates responsibly, the industry faces scrutiny. Plus, as I noted in '96, past growth rates aren't guaranteed; what counts is intrinsic value, not just the numbers on a balance sheet. Market fluctuations can play havoc with reported earnings, and the Permian isn't immune to competition or geological surprises.

All that said, I think Diamondback has real long-term potential. Energy isn't going away—we'll need oil and gas for a good while yet, and the Permian is a goldmine of reserves. At a current price of $174.01, with a market cap of $49.9 billion, their valuations look attractive: a P/E of 9.6 times, P/B of 1.0, and EV/EBITDA of 5.3—that's not overpaying for a business with such a strong moat and earning power. Their Buffett score of 83.7 out of 100 suggests it's got many of the qualities I look for in a sensible investment. But remember, patience is key; volatility in energy stocks can test your nerves, much like waiting for a slow-cooked stew to be ready. If you're looking for a company that can compound value over decades, not quarters, this might be one to consider—buy it if you believe in the long haul, hold it with a steady hand, and let compounding do its work. Just like with any investment, do your homework and buy when you think it's undervalued. That's the way to build wealth, one patient step at a time. (Word count: 752)

Well, howdy there, neighbor. If you've ever watched a skilled gardener tend to a plot of land that's just right for growing prize-winning tomatoes, you'd know that some patches of earth yield bountiful harvests year after year, while others turn up nothing but weeds and heartache. United Therapeutics Corporation reminds me of that fertile garden – it's a biotechnology outfit that's been cultivating treatments for folks battling tough, chronic illnesses, much like tending to a stubborn vine that needs just the right care to thrive. Picture them as the folks who've figured out how to brew up remedies for pulmonary arterial hypertension, a nasty condition that can squeeze the life out of people, using products like their Tyvaso inhalers and Remodulin injections. It's not flashy, but it's steady work in the healthcare field, and they've built a business that's been growing revenues from zero to over $3 billion in the last year alone.

Now, let's talk about what makes this company tick in ways that align with my old-school way of thinking. As I've said before, the real test of a business isn't just how fast it paddles, but what boat it's in. United Therapeutics is rowing in a pretty solid vessel here. They've got that high return on equity – sitting at 19.3% lately, with an average of 14.9% over the past five years – and they do it without a whiff of debt. No leverage gimmicks, just solid earnings power. That reminds me of the lesson from 1979: aim for a high earnings rate on your capital, and don't let inflation or tricks fool you. Their net income has climbed steadily, from nothing to $1.3 billion in the last four quarters, and their moat score is a respectable 74.4 out of 100, thanks to strong patent protection and R&D know-how. It's like having a castle wall around their innovations, keeping competitors at bay. Management seems decent too, with a Buffett score of 80.6 – not perfect, but they've got the ingredients for long-term value. And that valuation? At a P/E of 15.1 times and EV/EBITDA of 10.1, it doesn't look like someone's trying to sell me the Brooklyn Bridge.

Of course, no garden is without its pests, and I wouldn't be honest if I didn't point out the weeds here. Biotech can be a fickle business – those patents don't last forever, and when they expire, competitors might swoop in like crows on corn. There's always the risk of regulatory hiccups; the FDA can be a stern judge, and if clinical trials stumble or new data comes up short, it could pinch earnings. Plus, while their insider ownership is low at 1.8%, that means the big institutional folks hold most of the reins – not always a bad thing, but it can make for less skin in the game than I'd prefer. And let's not forget, healthcare stocks can swing with the market's moods, as I noted back in 1996 about how fluctuations affect reported numbers. Humility is key; I've seen brilliant managers tackle weak businesses and end up with tarnished reputations, so United Therapeutics isn't immune to that if the fundamentals shift.

But here's the thing: in the long run, a company like this could be a sensible buy if the price stays reasonable, around $476 a share with a $21.5 billion market cap. Healthcare is one of those sectors where unmet needs keep cropping up, and United Therapeutics is positioned to address them with products that have real staying power. They've got the kind of consistent earning power that builds intrinsic value over time, not just flashy growth. It's like owning a farm that produces crops reliably – you might not get rich quick, but with patience, it compounds nicely. If you're thinking about investing, remember my advice: look for businesses you understand, with strong economics and good stewards, and hold on through the ups and downs. United Therapeutics fits that mold better than most in biotech, and at these valuations, it might just be worth sowing a few seeds. Just don't expect miracles overnight – investing is a marathon, not a sprint. Stay curious, and keep your eyes on the long game.

My friends, let me tell you about Coterra Energy Inc., or CTRA as it's known on the ticker tape. It's like stumbling upon a well-kept farm in the heart of America—one that's been planting seeds in the ground for decades, pulling out not just crops, but the very fuel that keeps our nation humming. This company digs into oil and natural gas across some of the richest patches of land in the Permian Basin of Texas and New Mexico, the Marcellus Shale in Pennsylvania, and the Anadarko Basin in the mid-continent. They've got nearly 300,000 acres in the Permian alone, and they're not just scratching the surface—they're producing oil, gas, and those natural gas liquids that power our homes and cars. It's a straightforward business, folks, the kind I like to think of as mining for black gold, but with a focus on doing it efficiently and responsibly.

Now, when I look at a company like Coterra, I always ask myself: Does it have the kind of economic strength that can weather storms and deliver real value over time? From what I see, it aligns nicely with some of my old favorites. Take their return on equity, for instance—that's the measure of how well they're using the money invested in the business to make more money. At 11.2% recently, and averaging 7.7% over the past five years, it's solid, especially without piling on debt like some folks do to puff up the numbers. Their debt-to-equity ratio is a modest 0.28 times, which means they're not leveraged up to their eyeballs, avoiding the kind of accounting tricks that can make earnings look better than they are. As I wrote back in 1979, it's the earnings rate on capital that matters, not just some flashy growth in earnings per share. Coterra's been building that revenue steadily—from nothing in some quarters to $1.8 billion, and over the last four quarters, they've racked up $7.1 billion in sales with $1.6 billion in net income. That's not a flash in the pan; it's like a farmer harvesting a bumper crop year after year.

And oh, does this outfit have a wide moat around it, much like a castle surrounded by a deep, wide ditch to keep the invaders at bay. Their Moat Score sits at a healthy 72.9 out of 100, thanks to that asset base—those acres of prime land—and cost advantages that let them pull out resources cheaper than many competitors. In the energy world, where prices can swing like a pendulum, having low-cost operations means you can survive when others falter. It's reminiscent of what I said in 1985: Sometimes the business boat you're in matters more than how hard you row. Coterra's got itself in a pretty good boat here, with talented managers who seem to be rowing effectively. Insider ownership is low at 1.4%, but institutions hold a big chunk at 96.7%, which isn't always ideal in my book— I'd prefer more skin in the game from the folks at the helm—but the operating managers have driven a strong return on equity, just as I noted in 1990 about our own businesses at Berkshire.

That said, I'm not one to sugarcoat things. This is the energy business, and it's not without its pitfalls. Oil and gas prices can be as unpredictable as the weather, and while Coterra's in a strong position with their assets, they're not immune to downturns. We've seen that in the past with revenue dips to zero in some quarters, though they've bounced back nicely. There's also the broader chatter about the environment and the shift toward renewables, which could pressure demand for fossil fuels over time. And let's be honest, management quality isn't shining with that low insider stake—it makes me wonder if the leaders are as committed as they could be. But humility is key; as I said in 1996, intrinsic value trumps book value, and we have to temper expectations because past growth rates might not repeat forever. Market swings can affect reported earnings, and this sector is no stranger to volatility.

All in all, though, I see long-term potential in Coterra that makes it worth a closer look at today's price of $31.47 a share, with a market cap of $24 billion. Their valuation looks reasonable— a price-to-earnings ratio of 10.8 times, price-to-book of 1.2 times, and enterprise value to EBITDA at 4.9 times—suggesting it's not overpriced for what it is. America still needs energy, and companies like this one, with their efficient operations and solid moat, are well-positioned to provide it as we transition to cleaner sources. It's the kind of business where patience pays off, like planting an orchard and waiting for the fruit to ripen. If you're a long-term investor, not someone chasing quick flips, Coterra could be a sensible addition to your portfolio at these levels. Just remember, as with any investment, hold it with the same care you'd give a family heirloom—steady, patient, and eyes on the horizon. That's my take, folks; now go make your own decisions.

My dear friends and fellow investors,

Let me tell you a little story about lululemon athletica, or LULU as the ticker folks call it. Imagine you're out for a brisk walk in the park, and you spot someone gliding along in a pair of sleek yoga pants that fit just right – comfortable, durable, and stylish, making every step feel effortless. That's lululemon in a nutshell: a company that designs and sells athletic gear for folks who take their workouts seriously, whether it's yoga, running, or just staying fit. Founded back in 1998, it's grown into a global outfit selling everything from tops and jackets to shoes and accessories, with a focus on that technical edge that makes you feel like you're wearing a second skin. It's like the reliable old pickup truck of the apparel world – not flashy, but built to last and get the job done.

Now, when I look at a business like this, I always start by asking myself if it has the kind of consistent earning power that Charlie Munger and I prize. You see, as I wrote back in 1979, the real test isn't just growing earnings per share; it's about achieving a high return on the equity capital employed, without resorting to tricks or too much borrowing. Lululemon's got that in spades. Over the last eight quarters, their revenue has ticked up from about $2.4 billion to $2.6 billion, and while net income has dipped a bit from $0.4 billion to around $0.3 billion per quarter, the last four quarters saw a whopping $11.1 billion in revenue and $1.7 billion in net income. Their return on equity? A solid 38.7% lately, averaging 42.6% over five years. That's the kind of performance that warms my heart – earnings that come from smart operations, not from juggling the books or piling on debt. Their debt-to-equity ratio is a modest 0.39 times, which means they're rowing their boat with a steady hand, not overleveraging like some reckless sailor.

And speaking of boats, as I mentioned in 1985, a good managerial record often comes down more to the business you're in than how hard you row. Lululemon's in a sweet spot here: the athletic apparel game, where brand loyalty acts like a wide moat around a castle. Their moat score is an impressive 80 out of 100, built on that brand recognition and customer devotion. Folks aren't just buying clothes; they're buying into a lifestyle – think of it as the Coca-Cola of workout wear, where people keep coming back because it feels authentic and high-quality. The management team seems solid too, with insiders owning 4.6% of the company and institutional investors holding 83.1%, which suggests alignment of interests. It's reminiscent of what I said in 1990: much of the value in our businesses at Berkshire comes from talented managers we let do their thing. Lululemon's leaders have expanded internationally, from the U.S. and Canada to China and beyond, without losing their core focus on premium products.

Of course, no business is perfect, and I'd be remiss not to mention the potential pitfalls. This is a consumer cyclical company, after all, and economic downturns can hit discretionary spending like a sudden rainstorm on a picnic. If people tighten their belts, they might skip the fancy leggings for basics. Competition is heating up too – Nike, Adidas, and others are nipping at their heels, and while lululemon's niche in technical apparel gives them an edge, it's not insurmountable. Their valuation looks reasonable at a price-to-earnings ratio of 11.9 times and an enterprise value to EBITDA of 7.3 times, but markets can be fickle, as I noted in 1996. Our gains come from intrinsic value, not just what's on the books, and past growth rates might not repeat if the economy sours or trends shift.

That said, I'm inclined to view lululemon as a sensible long-term hold at its current price of $182.13, with a market cap of $21.6 billion. It's got the hallmarks of a business that could compound value over time: strong economics, a loyal customer base, and management that knows how to navigate the waters. If you're patient, like waiting for compound interest to work its magic, this could be one of those outfits where the intrinsic value grows steadily. Just remember, investing isn't about chasing the latest fad; it's about finding businesses that can weather storms and deliver for owners year after year. If it fits your portfolio like a well-made pair of lululemon pants, it might just be worth a closer look.

Warm regards, Warren Buffett

My dear neighbor, if you've ever watched a farmer tend to a field that's just starting to sprout but promises a bountiful harvest, you might understand what catches my eye about Incyte Corporation. This biopharmaceutical outfit reminds me of a young orchard where the trees are still stretching their roots, but the fruits—those life-saving drugs—are already ripening on the branches. Founded in 1991 and based in Wilmington, Delaware, Incyte is all about discovering, developing, and selling therapies for tough diseases like myelofibrosis, certain leukemias, and even some aggressive lymphomas. They've got products like JAKAFI, which helps folks with blood disorders, and others that tackle cancers head-on. It's a business rooted in science, and while it might not be as steady as a Berkshire Hathaway subsidiary, it has that spark of real potential.

Now, let's talk about what makes this company align with the principles I've always cherished, like finding businesses with strong economic underpinnings and management that knows how to row without capsizing the boat. First off, Incyte boasts a respectable economic moat—think of it as a castle surrounded by a deep, wide moat filled with patent protections and robust R&D capabilities. Their moat score sits at 69 out of 100, which ain't half bad in the unpredictable world of biotech. Patents on their key drugs, like JAKAFI and ICLUSIG, keep competitors at bay, much like a sturdy fence around a prized garden. This isn't just fluff; it's the kind of protection that allows a company to earn a good return without the constant worry of invaders stealing the harvest.

On the earnings front, Incyte is showing the kind of consistent earning power that warms my heart. Over the last eight quarters, their revenue has climbed from nothing to $1.5 billion, and in the latest trailing twelve months, they've pulled in $5.1 billion with net income of $1.3 billion. That's growth you can see, like watching a sapling turn into a tree. Their return on equity stands at 24.9%—and that's without piling on debt, which is practically nonexistent at just 0.01 times debt-to-equity. No accounting tricks here; it's straightforward, like a farmer's honest plow. Even over five years, their average ROE is 14.6%, proving they can deliver real value for shareholders without undue leverage. As I once wrote back in 1979, the real test is a high earnings rate on capital employed, and Incyte is passing that exam with flying colors.

Management quality is another box to check. While insider ownership at 1.9% is on the modest side—not as high as I'd prefer in some cases—it doesn't scream complacency. The folks running Incyte have built a track record of innovation, and as I noted in 1990, much of a business's extra value comes from talented managers who know their stuff. With institutional ownership at 104%, there's plenty of smart money watching, but that also means the stock might dance to Wall Street's tune now and then. Still, they've created an environment where R&D flourishes, driving that high ROE.

Of course, no business is perfect, and I'd be remiss not to mention the risks with a humble nod. Biotech is a field where things can go sideways—regulatory hurdles from the FDA could delay approvals, or clinical trials might not pan out as hoped. Competition is fierce; other companies are rowing just as hard in this boat, and a drug flop could dent earnings. Their valuation metrics—P/E at 15.5 times, P/B at 3.9, and EV/EBITDA at 9.6—look reasonable, but remember, as I said in 1996, what counts is intrinsic value, not just the numbers on a balance sheet. Market fluctuations could make the ride bumpy, and with growth slowing a tad, we can't expect the same rocket-ship pace forever.

All in all, Incyte strikes me as a sensible long-term bet at around $103 a share and a market cap of $20.5 billion. They've got the makings of a durable business with wide moats, strong earnings, and minimal debt—qualities that align with my love for companies that compound value over time. If you're patient, like waiting for that orchard to bear fruit, this could be a solid addition to a diversified portfolio. Just remember, investing isn't a sprint; it's a marathon. Hold on through the storms, and you might find yourself rewarded. As always, do your homework and invest only what you can afford to leave alone for years. Cheers to thoughtful investing!

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