This Bud may not be for Anheuser-Busch Cos. (NYSE: BUD) for much longer.

InBev, the Belgian mega brewer, has told the King of Beers that it won't wait forever for it to make up its mind about whether to accept its unsolicited $46.3 billion offer. In the third and probably not the last letter to Anheuser-Busch CEO August Busch IV, InBev CEO Carlos Brito points out that his company's offer, which represents an 18% premium on its all-time high in 2002, is a generous one.

"The market reaction to our proposal has been extremely positive," Brito writes. "We believe this confirms our view that our proposal is the best way to achieve this transformational combination for all constituents."

InBev has already lined up financing for its $65 per share offer and has even paid about $50 million in commitment fees to its bankers. Budweiser's long-time headquarters in St. Louis will be maintained as will its senior management team. It does not get any better than this for a company about to be acquired.

After five months of tracking my 2008 picks, it is rewarding to finally have a breakthrough -- topping the three major stock indices and Berkshire Hathaway (NYSE: BRK.B) too. It has been painful to have to report each month that I was being bested. However, since I have not seen anything contradicting my original rationale for my eight picks I stood my ground.

This past month saw great improvement. For the first time since I posted the original story Chasing Value: Final list -- 8 stocks for 2008, five of the eight stocks are up:

Moving into positive territory by pennies was Loews Corporation (NYSE: LTR). Among its holdings is a 51% stake in Diamond Offshore Drilling, Inc. (NYSE: DO) that has been doing well as the world remains desperate for more oil and natural gas.

Bunge Limited (NYSE: BG) was the other stock to cross the line into the black, while Valero Energy Corp. (NYSE: VLO), although improving, remains my worst performer. It is still down almost 28% after five months.

The gap between the Dow Jones Industrial Average, Standard & Poor's 500 Index and the technology heavy NASDAQ Composite Index narrowed substantially so that the three are tracking each other very closely. Stocks like Apple, Inc (NASDAQ: AAPL) and Google Inc. (NASDAQ: GOOG) continue to gain significantly and their outlooks have not been shaken amid overall pessimistic economic forecasts.

Berkshire Hathaway's (NYSE: BRK.A) recent high-profile investments in places like Europe and Israel have led many Oracle of Omaha-watchers to speculate that Warren Buffett is bearish on America.

Not so, says Mr. Buffett. Speaking at a business school in Switzerland, he told members of the media that "We buy ... when other people have a reason to sell. We love buying companies in the U.S."

The Wall Street Journal reports (subscription required) that Buffett also said he would consider future investments in Eastern Europe, but that it is difficult to find acquisition targets that are large enough to be meaningful for Berkshire. He also doesn't feel that the weakened U.S. dollar would make investing in Europe difficult.

There's nothing too surprising here. Buffett has generally pursued a bottoms-up investment philosophy throughout his career (with some style-drift in recent years as Berkshire's cash pile has grown). He looks for strong companies with good management and predictable future cash flow, and I don't think he would write off any region where he can find that because of supposed macroeconomic concerns.

Just days after the fifth anniversary of George W. Bush's landing on an aircraft carrier in front of a "Mission Accomplished" banner, the Weapons of Mass Destruction (WMDs) have finally been located. But not in Iraq or Iran or Syria.

These WMDs are of the financial variety. The ones against which Berkshire Hathaway Inc.'s (NYSE: BRK.A) CEO Warren Buffett railed in his 2003 annual report. There he called derivatives "financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal." And Reuters reports that these are the very financial WMDs that cost Berkshire $1.7 billion in charges in the first quarter of 2008.

This proves that George W. Bush was right and so was Warren Buffett. But Berkshire shareholders are also smarting due to a 64% drop in its net income and a 24% tumble in its revenues.

During May sweeps season on daytime television, Walt Disney (NYSE: DIS)'s ABC network may very well have gotten the most timely financial subplot of them all. Oh yes, and don't forget "weird." Erica Kane, Susan Lucci's storied character on All My Children, will be aided by a knight in shining Berkshire Hathaway stock -- billionaire guru Warren Buffett. She's in prison for insider trading; who better to call than the world's richest man? I can't think of anyone, except maybe a lawyer (n.b.: NOT the one who represented Martha Stewart).

According to the New York Post, Buffett excuses himself during his meeting with Erica Kane to take a call from Bill Gates (his longtime friend and constant rival for world's-richest-man title).


This is the third time Buffett has appeared on All My Children, having previously appeared on the show in 1991 and 1993 (the show's spokespeople evidently got the record confused and have been pointing to one episode in 1992). In October 1991, Warren and then-ABC chairman Thomas S. Murphy appeared as themselves to give Kane advice on her cosmetics business. They reprised that role in August 1993. While it may seem a little strange for a billionaire financial genius to watch the soaps, Buffett is evidently a fan of the show and is friendly with All My Children creator, Agnes Nixon. According to show spokesman Mike Cohen, Buffett has been waiting to come back to the show. For 15 years.

When Warren Buffett announced his offer to back $800 billion worth of municipal bonds backed by MBIA (NYSE: MBI), Ambac (NYSE: ABK) and FGIC, the offer was blasted as being something less than helpful. Buffett himself admitted that "When I go to Saint Peter, I will not present this as some act that should get me in. We're doing this to make money."

Now, speaking on CNBC, Buffett said that offer is "not on the table."

The offer was seen as less than generous in that it offered no help for the most risk mortgage-backed debt and charged large premiums.

Given that, it's hard not be a little frightened by Buffet's decision to withdraw the offer. It's possible that he simply withdrew it because it was unpopular and poorly-received.

But if an offer that was seen as a gimme for Berkshire Hathaway (NYSE: BRK.A) is no longer appealing to Buffett -- that means things for the bond insurers could be considerably worse than previously thought.

And most people already thought things were pretty bad.

Bloomberg News reports that Warren Buffett offered to reinsure $800 billion worth of municipal bond liabilities for MBIA Inc. (NYSE: MBI) and its other bond insurance peers. Why is Buffett doing this? He sees distressed companies in desperate need of capital and he thinks he can provide it at a bargain price.

The bond insurers are under severe pressure because they stretched outside of their comfort zone thanks to their desire to make more money by insuring subprime-linked securities. Those bad bets now threaten their credit ratings and their future. But the risk in their municipal bond portfolio is probably much less severe. So Buffett sees a chance to profit from their distress to take a relatively low risk bet that the non-payment of municipal bond principal and interest will cost him little.

Buffett's Berkshire Hathaway Inc. (NYSE: BRK) would put up $5 billion as part of the plan. The bond insurers lend their AAA rating to $1.2 trillion of municipal debt, the rankings of which would be thrown into doubt if they were downgraded. If the debt was reinsured by AAA rated Berkshire, the municipalities would also retain the top rating.

So the deal would work out great for Buffett and the municipalities while the bond insurers will give up some of their future profits to Buffett who is using his higher credit rating to extract value for his shareholders. And if the bond insurers can forestall a ratings downgrade, it will be beneficial to their shareholders as well.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

A few days behind schedule, but here is my list of eight stocks. Included in the list there are two holdovers from the 2007 list of seven stocks. I do not see any value in creating an entirely new list when I have done well over the years riding the winners. This is particularly true if the reasons you bought the stock in the first place remain valid.

These eight picks for the year will be tracked monthly with updated results. The initial share prices are from December 28, 2007. They are focused on defense, energy, food, gold, metals, mining, oil, power, and every one pays a dividends. The following are my "Quick Takes" in alphabetical order with links to the complete stories.

Anglo American plc (ADR) (NASDAQ: AAUK) is a world-class player in precious metals, diamonds, and commodities, which are all growing in demand. When the world economy is booming, all of its mining products are sought after, and when the market runs scared, gold goes up. It pays a dividend yield of 1.9% and is trading almost 25% off its 52-week high. For full story: Chasing Value: Anglo American diamonds and gold are your best friend. The closing price on December 28, 2007, for AAUK was $30.79.

Wall Street seems bent on finishing 2007 on a high note and after yesterday's big selloff following Pakistan's former prime minister and opposition leader Benazir Bhutto's assassination, futures are up this morning, indicating U.S. stocks could start higher.

Yesterday, U.S. stocks tumbled on the assassination news -- fearing further unrest in one of U.S.'s allies in its war on terror in Afghanistan and due to weaker-than-forecast rise in durable-goods orders. The positive consumer confidence report couldn't offset the news. The Dow industrials dropped 192 points, or 1.42%, the Nasdaq Composite fell 47 points, or 1.75%, and the S&P 500 lost 21 points, also 1.42%.

News that could be moving the market this morning include talk of big bank asset sales and later some data that is due out:

With four more trading days left this year, some investors will be back after the holiday, ready to adjust final positions, others may have taken the rest of the week/year off and trading could be light. Stock futures are somewhat higher this morning, indicating a similar start for U.S. markets. The focus this morning seems to be on retail and holiday sales results, but surprisingly enough, there is also some deal news.

On the shortened trading day Monday, stocks fared well with the Dow industrials ending up 98 points, or 0.78%, the S&P 500 adding nearly 12 points, or 0.81%, and the Nasdaq composite rising 21 points, or 0.8%.

There only economic indicator reported today is the Standard & Poor's Case-Shiller index of single-family home prices, due out just before the market open.

The weekly crude inventories, normally released Wednesday, will be released Thursday. Oil prices rose Wednesday ahead of the report with traders expecting a new decline in its oil inventories to 1.2 million barrels of crude oil supplies due to a decline in imports.

Christmas is as good a time as any to announce a deal I suppose, and buying a conglomerate consisting of 125 manufacturing and service companies is probably Warren Buffett's preferred means of celebrating.

For $4.5 billion, Berkshire Hathaway (NYSE: BRK.A) will get 60% of Marmon Holdings, with plans to acquire the rest over the next 5 or 6 years at a price to be determined by the company's future profitability. According to the press release, the company's operations are pretty diverse:

Barron's [subscription required] cover story suggests that Berkshire Hathaway Inc (NYSE: BRK.A) is overvalued. I think the stock has been rising because money is looking for a safe haven in today's volatile market. And Barron's is right to get people thinking about how safe that haven is as Warren Buffett's years as CEO draw to an inevitable -- and sad -- close.

Berkshire's market value is very high. It hit a record $151,650 last week and now has a stock-market value of $220 billion. But it's pricey -- based on several valuation measures, Barron's thinks it's worth $130,000 a share -- about 10% below the current quote. Here are two of those methods:

• Price/book. Currently, Berkshire's ratio of market value to book value -- its assets minus its liabilities -- is at 1.8 times its September 30 book value, of $77,800 a share. That's above its average of 1.6 in the past five years. It's also valued at 23 times estimated 2007 operating profits of $6,300 a share. 2008's profits are expected to be similar to this year's. If Berkshire were valued at 1.7 times book value, a premium to its five-year average, the stock would trade at $132,000.
• Insurance on book value, others businesses on profits. Some analysts value Berkshire by assessing its insurance units on book value and its other businesses on profits. Using this approach, Barron's came up with a value of about $130,000 a share. This calculation used a price/book ratio of 1.7 on Berkshire's insurance units' estimated September 30 book value. Barron's assigned a price/earnings multiple of 15 to projected 2008 operating profits of $2,800 a share for the non-insurance businesses.

Eight for 2008:

• Berkshire Hathaway Inc. (NYSE: BRK.B) is a strong candidate. It meets two of the three criteria in a big way. Although it does not pay a dividend, most of its stock holdings do and Warren Buffett has been the gold standard for creating shareholder equity. If 2008 proves to be a shaky year on Wall Street, you will want to own this stock. BRK.A/B has been appreciating but given all the uncertainty in the market I will stick with this solid company.
• Intuitive Surgical, Inc. (NASDAQ: ISRG) is also a strong candidate that I have written about many times. It does not pay a dividend, but this one has beat everybody and everything every year since I bought it, and is likely to do it again. It has hardly penetrated its potential market. It is significantly off its all-time high, and may look like a bargain by December 28. My regular readers know I love this stock but it has gone back up from about $280 to $320 and by the 28th may not be much of a value.
• Huaneng Power International, Inc. (ADR) (NYSE: HNP) does pay a sizable dividend and has plenty of room to run. It has come down a lot with the rest of the inflated Chinese stock market, but this one is not threatened by competition and is a good long-term value. The largest potential downside might be costs associated with environmental clean-up. China is addressing these issues but has a long way to go. This is a must own and with all the stories about electric cars and more devices requiring power all the time plus its recently soft price I still favor HNP. It still has a 3.6% yield, and is increasing equity every day.
• The Dow Chemical Company (NYSE: DOW) has done well this year but not spectacular. It meets my criteria for consideration on all counts and has a lot going for it. In partnership with Corning, it is developing materials for the solar energy industry. It will probably continue to be mentioned in merger and acquisition rumors, and it has historically been an innovator willing to spend on R&D. If oil goes down in price, the primary ingredient in many of DOW's products will create improved margins. A P/E of 10 and a 4% yield, need I say more?
• Duke Energy Corporation (NYSE: DUK) (NYSE: SE) will remain on the possibility list for now. It pays a handsome dividend and might see some growth next year as investors look for stability. This year it was flat. That might be good enough if the market ends in turmoil next year. Yes there is room for two power companies on my list and this one is paying a solid 4% yield.
• The Home Depot, Inc. (NYSE: HD) was one of my dogs this year (and continued to report poor earnings) but there is value here and this year going forward it is greater than last year. There are a number of latent problems at HD, but at current prices there is also deep value. I still think HD is a buyout candidate now more than ever, but whether the stock recovers in 2008 or deep into 2009 remains a question.
• Valero Energy Corporation (NYSE: VLO) was one of my favorites last year, remains one of my favorites now and is a very strong candidate to stay in favor next year. Its margins have been squeezed lately by high crude prices and stable pump prices, but that could change, and the stock may appreciate significantly in 2008. I have no idea what Wall Street is thinking but it still seems too cheap with a P/E just over 7, a P/S of 0.34 and still no one seems to be building any new refineries.
• General Dynamics Corporation (NYSE: GD): The price-to-sales is a low 1.26 and the P/E is average. It makes the Gulfstream aircraft for the wealthy jet-setter and the Abrams tank for the military. How many of those will need parts or replacement in the coming years? See Chasing Value: General Dynamics (GD) looking long and flying high!
• Northrop Grumman Corporation (NYSE: NOC) sports an even lower P/S of 0.81 and a lower P/E too, of 15.25. It has a higher dividend yield than General Dymanics and a P/B of 1.57, which seems to low. Another defense contractor adding new contracts every week.
• Anadarko Petroleum Corporation (NYSE: APC) is one of my favorite stocks. It is in the right business at the right time, and it has substantial proven reserves in North America. I see APC as a perpetual takeover target, but it has been successful as a stand-alone and can remain so. The stock price is about 5% off its 52 week high but the P/E is still under 7 so I am bewildered as to why some larger fish has not swallowed this one whole just for it's North Amercian reserves.
• Anglo American plc (ADR) (NASDAQ: AAUK) is another stock that could end up in M&A discussions. Let's see, it's a global player in diamonds, gold, silver, platinum, coal and more. This is a currency play, a commodities play, a global play, and an inflation hedge - got to love that if you can get it at the right price. Unlike oil prices which may be affected by the weather, new technologies, or alternative sources these commodities will remain in demand. Gold may be used instead of silver, platinum instead of gold but except for locating new supplies the demand for these precious metals and commodities can only grow with the growth of the new economies and the wealth of their citizens.
• Nucor Corporation (NYSE: NUE) is one of the world leaders in the idea of mini-mills. This smallish steel producer prides itself on running a tight ship, pays a dividend, and has a P/E around 10. Once again, it could be a takeover target as the industry continues to consolidate. It is 25% off its high, and is a strong candidate to make the final cut. Still looks like a winner but not as much so given it's recent rise. Maybe someone is actually reading my rants?
• Reliance Steel & Aluminum (NYSE: RS) processes and distributes more than 100,000 products made of carbon, alloy, stainless, and specialty steel, as well as aluminum, brass, copper, and titanium. It serves more than 125,000 customers. For reasons that I will explore in future stories, the entire steel industry seems to be on sale and perhaps priced for a recession. Reliance has a P/E of 9.6 and a PEG ratio of 0.71, so unless there is something here that is well concealed, it seems way too low. My opinion has not changed but I wish RS would raise it's meager dividend of .63%. That might affect my decision if it becomes a close call.

Stocks that didn't make the cut:

Shares of CarMax (NYSE: KMX) soared 7.5% last week on rumors that Berkshire Hathaway's (NYSE: BRK.A) Warren Buffett was was buying.

But it wasn't so. In reality, Berkshire subsidiary Geico was buying the stock. While that company's stockpicker, Lou Simpson, has a strong reputation, it is not up to the level that his involvement sends stocks flying.

But let's think about the wisdom of stocks going up because Buffett is buying, and whether it fits into the efficient market hypothesis, the theory taught in finance classes across the country. The theory states that the market is a nearly perfect discounting mechanism, and that the current stock price reflects the present value of the company's future cash flows.

If that's true, why did CarMax go up 7.5% on rumors of Buffett's interest? That's a gain in value of more than $300 million and, this is important, Buffett is never an activist investor. He buys companies where he likes the management, and makes no effort to shake things up. So how could his buying possibly add $300 million to the present value of CarMax's future cash flows?

I'm generally a believer in at least the weak form of the efficient market hypothesis, but there are all kinds of little holes in the stronger form, and the phenomenon of copycat buying would appear to be one of them

As Peter Cohan recently wrote, Warren Buffett believes that the Chinese stock market has overheated.

So how can investors profit, with possibly more upside than shorting the index? First, an analogy:

If you were in California during the late 1850s, and received a tip from the foremost gold expert in the world that the California Gold Rush was about to end, how might you seek to profit from it? If possible, I would try to find companies to short: the cottage industry of shops selling shovels and picks to would-be miners would be a prime target, if I could find such a publicly traded company.

This brings me to China Finance Online (NASDAQ: JRJC), a high-flyer trading at about 662 times trailing-twelve months' earnings. The company markets stock-tip newsletters to Chinese retail investors, through a really (not) innovative distribution system: telemarketing. Why that business is worth $700 million is beyond me.

The catalyst for the company/stock's decline could be a softening of the market. Everyone's excited about stocks because the market is up big. But if people start losing money, how many are going to want to cancel their subscription and find a new hobby? A lot.