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Published: August 17, 2010
Super-investor Warren Buffett has made a
big bet on Johnson & Johnson (NYSE: JNJ), adding more
than 17.4 million shares to the portfolio of his holding
company, Berkshire Hathaway (NYSE: BRK-B). His stake in
J&J is worth about $2.4 billion at current prices.
The move can be seen as a classic Buffett "value" play: J&J
shares, at about $58, are well off their 52-week high of $66.20
and are down nearly -10% for the year. The company has annual
revenue of more than $60 billion and consistently earns returns
on shareholder equity of between 25% and 30%. It has posted an
increase in earnings for at least the past 10 years, and 2010
profit forecasts imply a +188.3% increase in net earnings since
2000. (Earnings have surprised to the upside for the past five
years, according to Bloomberg.)
The J&J stake wasn't the only health-care bet made by the
79-year-old Buffett, whom Forbes lists as the second-richest man
in the United States, with an estimated net worth of $40
billion, second only to Microsoft founder and close friend Bill
Gates. Buffett also added to his stake in drug maker Sanofi-Aventis
(NYSE: SNY) and to his position in medical-device maker
Becton Dickinson & Co. (NYSE: BDX).
The Berkshire portfolio showed one other addition: Buffett added
a 4.4 million-share stake in Fiserv (Nasdaq: FISV), which
provides IT services to banks, an area Buffett is familiar with
and likes -- three of his largest holdings are financial
institutions: American Express (NYSE: AXP), U.S.
Bancorp (NYSE: USB) and of course the $8.2 billion stake in
Wells Fargo (NYSE: WFC).
Fiserv offers predictable and "non-cyclical" earnings that are
shielded from economic downturn. The company operates at a
robust 23.5% operating margin. That's not as rich as the 39.2%
operating margin at Moody's (NYSE: MCO), another
Berkshire holding, though one that Buffett has started to pare
in the light of potential liability for the company's ratings
during the subprime ordeal. (Buffett stood pat on Moody's in the
second-quarter, with a $685 million block of shares.)
The addition brought the total number of
companies in the regulatory filing to 37. Berkshire also owns
shares in several foreign companies, though it is not required
to disclose those stakes.
Other portfolio moves:
Berkshire picked up a few shares of Iron Mountain (NYSE: IRM),
which provides secure document disposal and storage services to
companies. Buffett bought 205,200 shares, bringing the total
value of the stake to about $176 million at today's prices.
Expanding this position is part of a broader move to increase
Berkshire's ownership of trash companies: Buffett has amassed a
10.8 million share hoard of Republic Services (NYSE: RSG),
a move that has been mirrored by Buffett's close friend Bill
Gates, who owns 55.4 million shares of the company through his
private hedge fund, Cascade Management, as well as another 1.35
million shares through the Bill and Melinda Gates Foundation,
which also owns 15.7 million shares of Waste Management
(NYSE: WM). Though Buffett didn't add to Republic in the
second quarter, I fully expect him to continue adding shares of
this company.
Buffett shed shares of ConocoPhillips (NYSE: COP), which
he bought during the run-up in oil prices and has said since was
a poorly timed investment. The oil business is a curious area
for Buffett, who tends to like businesses that require little
additional capital, which is the lifeblood of growth and success
for oil companies. He left his stake in ExxonMobil (NYSE: XOM)
untouched, though at $25 million it is relatively minor -- the
Conoco stake is worth nearly $1.6 billion.
[Read:
5 Reasons Why ExxonMobil is a Buy]
Buffett also continued to pare his stake in Kraft Foods
(NYSE: KFT). Buffett had a rare public disagreement with
Kraft CEO Irene Rosenfeld over her decision to buy Cadbury.
Buffett -- one of the largest holders of Kraft stock -- thought
Rosenfeld was looking for a show horse deal and paid too much.
(Buffett prefers work horse deals.) Kraft, which announced its
takeover bid for Cadbury in early September 2009, has more than
doubled the S&P since, rising +11.3% to the benchmark's +5.3%.
Berkshire, however, has gained +18.1%.
Action to Take -->
Investors should mirror Buffett's J&J buy -- few companies are
able to match its diverse and innovative product lines, and even
fewer can generate the earnings of the health-care giant. Plus
its shares are cheap. Buffett's wisdom has always been in
spotting undervalued gems, and he couldn't give investors a
clearer buy signal.
-- Andy Obermueller
Chief Investment Strategist
Government-Driven Investing,
Fast-Track Millionaire |
