The Oracle of Manitoba (36.4% annual return!!!)
Randolph McDuff of The Pas, Manitoba To McDuff, cheap means having a lower enterprise ratio than competitors. That ratio is the enterprise value (market capitalization plus debt minus cash) divided by operating income (in the sense of earnings before interest, taxes, depreciation and amortization). Analysts use the ratio under the column heading ev/Ebitda. McDuff says it beats the classic price/earnings ratio because it captures an element of balance-sheet health. Before buying a stock, McDuff writes up a 1,000- to 2,000-word thesis on why it's a buy and shares it on a few investing Web sites. "It's very cathartic," he says. McDuff scored big early BPZ Resources. Other winners include MasterCard (nyse: MA - news - people ) and diabetes care specialist Novo Nordisk (nyse: NVO - news - people ). Seven months ago McDuff began buying Nestlé. Last year the Swiss food purveyor (Perrier, Purina, Carnation) spent $9.5 billion on major acquisitions without even consuming its net income (which was $10.4 billion). Despite that, and a $195 billion market value, Nestlé trades in the U.S. on the microcap-heavy Pink Sheets. A mere three North American analysts cover the firm. Rival Pepsi (nyse: PEP - news - people ), one-third the size, is followed by 17. McDuff likes that Nestlé's managers seem to be in business to enrich the owners rather than themselves. "Senior management, including directors, took home $49 million last year," McDuff says. "That's about half what Pepsi's management was paid." McDuff scouts for overlooked sectors, too, and is big on airports. Since airport privatization is still a foreign concept, airports are mostly ignored here, he says. "The revenue streams are the stuff that most commercial real estate investors would kill to earn," says his investment thesis. "Charges include departure taxes, landing fees, baggage-handling fees and aircraft fuelling costs. ... Almost everyone who visits an airport pays some sort of fee. It's not unusual for them to have [operating] margins of 60% to 70%." McDuff's favorite is Beijing Capital International Airport. North Americans have missed this one in part because it trades like a penny stock, at $1.08 a share over the counter. Yet with four billion shares out, its value exceeds $4 billion. Revenues have grown 14% annually since 2000. Last year it reported $500 million in revenue and $315 million in cash flow (in the sense of earnings before interest, taxes, depreciation and amortization). Those numbers will go up. Beijing just completed Terminal 3, the world's largest. Fast-rising revenues and an enterprise ratio of 15 tell McDuff that the shares will take off. He also likes Mexico's Grupo Aeroportuario del Sureste (nyse: ASR - news - people ), listed on the New York Stock Exchange. For all his worldly success investing, McDuff says he's happy making enough to live comfortably. Marketocracy.com passes on to McDuff a cut of the fees it earns from his portfolio. McDuff donates the proceeds ($1,000 in the last quarter) to the charity American Water Relief.
Runs RMG ValueCataylst
36.4 compounded annual rate of return
Personally, very frugal. Saved two million by 37 yo
Uses Marketocracy.com to see if he could do it
Strategy - WB meets Sir John Templeton
Like Buffett, McDuff looks for high operating profit margins (Ebitda divided by sales), a strong balance sheet and market power (monopoly or duopoly). Like Templeton, McDuff looks far and wide for firms that fit this bill but are also still cheap.
