Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (1) | Ignore Thread Prev | Next
Author: TMF42 Big red star, 1000 posts CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 77  
Subject: Buffett and LHC Group Date: 2/18/2011 11:53 AM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 1
Warren Buffet recently said:

“The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”

With that in mind, it would appear Buffett would never invest in LHC Group (Nasdsq: LHCG) or any of the home health operators I've been looking at because they are pure price takers -- Congress and CMS set the Medicare reimbursement rates they rely on as revenue.

With that said, that doesn't mean price-taker businesses are all bad investments, it just means they aren't great businesses. There is a difference.

The tradeoff you have with the home health operators is that you get an incredibly stable "customer base" (chronically ill geriatric patients) and a credit wrothy (gulp) payor in the US Goverment.

I guess Buffett would probably retort that we don't have to swing at such a pitch and we should wait for the true "fat pitches" that have it all.

[My apologies to Mr. Buffett for even thinking I know what his retort would be.]

Interesting.

Bryan
TMF42
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (1) | Ignore Thread Prev | Next

Announcements

Foolanthropy 2014!
By working with young, first-time moms, Nurse-Family Partnership is able to truly change lives – for generations to come.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Macro Economics

Economic Implications of Cuba
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement