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The Other Healthcare Stocks of Warren Buffett
Posted by: Dianne Tordillo (IP Logged)
Date: December 5, 2012 09:05AM
Large dialysis services provider, DaVita Inc. (DVA) has been receiving magnified attention ever since Warren Buffett’s Berkshire Hathaway (BRK.A)(BRK.B) first initiated a position in the company in the fourth quarter of 2011, and even more so when the company is seen making increasingly concentrated bullish moves on DaVita over the past several weeks.
Since September, Berkshire has reported to adding to its DaVita stake at least 12 times, with some increases as little as 0.65 percent (see Warren Buffett’s trade history for DaVita, in Guru Buy/Sell tab). The latest increases were made Nov. 29 with a 5.53 percent boost, while three days before that on Nov. 26, was a 3.47 percent addition.
Out of the 38 reported stocks in Berkshire’s portfolio as of the latest quarter, the smallest represented sector is health care. Besides DaVita, Berkshire has holding of three other stocks that belong to the health care field. Below are their descriptions.
GlaxoSmithKline PLC (GSK)
Berkshire first acquired global healthcare group GlaxoSmithKline in the fourth quarter of 2007, and has not touched the stock ever since. Purchased at an average price of $51.45, GSK’s price has fallen to $43.66 per share since then, despite the fact that the stock is actually trading close to its three-year high. Berkshire owns a total of 1,510,500 shares of the company.
With a market cap of $67.38 billion and an enterprise value of $82.61 billion, GSK is known for its research-based pharmaceutical and health care companies, as well as its development, manufacturing and marketing of products including vaccines, over-the-counter medicines and health-related consumer products.
GSK is broken down in eight different segments, with the US and Europe Pharmaceutical/Vaccines segments as the two largest ones. Its other segments are Pharmaceutical/Vaccine segments for Emerging Markets, Japan and Asia Pacific, as well as Viiv Healthcare, consumer healthcare and other.
In its third quarter financial report, GSK reported strong cash generation and returns to shareholders, with £4.8 billion distributed to shareholders year to date, which is a 9 percent increase from 2011. Although the company’s overall business remains strong, the weakness in the European market has negatively affected the sales of its segments. The company expects to repurchase shares in the rest of 2012, within the range of £2 billion to £2.5 billion.
On GuruFocus, GSK’s revenue per share annual growth rate is 4.83 percent. It has one star for Business Predicatbility, as well as a 7 out of 10 in both Financial Strength and Profitability and Growth.
To review GlaxoSmithKline’s financial data, visit its 10-Year Financials page.
Johnson & Johnson (JNJ)
Berkshire’s latest move on its JNJ holding was the 95.24 percent reduction to its stake in the third quarter.
At one time, Berkshire owned more than 61 million shares of the company. Currently, the company sits at 492,028 shares.
Over the course of a decade, JNJ maintained a price range between a $50 to $65. Today, it trades at the price of $69, climbing positively close to its 10-year high.
With a market cap of $193.25 billion, and an enterprise value of 184.9 billion, JNJ commits its business to the manufacturing and sale of a broad range of products in the health care field. It was founded in 1886, priding its company for 29 consecutive years of adjusted earnings increases and 50 consecutive years of dividend increases (www.jnj.com).
Berkshire started its most recent major stake reductions in the third quarter of 2011, when the firm said farewell to 5.1 million shares, then consecutively selling more of its shares in the quarters that followed.
In the first quarter of 2012, Warren Buffett appeared on CNBC’s Squawk Box, commenting to host Becky Quick about Berkshire’s JNJ holding.
"They have some wonderful products and a wonderful balance sheet, but too many mistakes have been made at Johnson & Johnson," he said. "Clearly, they have not lived up to their standards."
JNJ has a dividend yield of 3.5 percent, and a dividend payout ratio of 0.48. JNJ reports solid revenue growth, expanding at a rate of 2.2 percent in the past 12 months, 4.1 percent in the past five years and 8.3 percent in the past 10 years.
To review Johnson & Johnson’s financial data, visit its 10-Year Financials page.
France-based global healthcare provider Sanofi has been on Berkshire’s portfolio for several years, and has reported no reductions of the stock. From 2007 to the first quarter of 2008, Berkshire’s holding remained around 3.5 million shares, until increasing the stake by about 9 percent in the second quarter of 2008.
Berkshire’s latest trade of Sanofi was its purchase of 159,742 shares in the second quarter of 2010. Berkshire remains with a current holding of 4,063,675 shares of Sanofi, which accounts for 0.23 percent of Berkshire’s portfolio.
With a market cap of $8.59 million shares, and an enterprise value of $7.67 billion, Sanofi is involved in discovering, developing and distributing therapeutic solutions through its seven growth platforms: diabetes solutions, human vaccines, innovative drugs, consumer healthcare, emerging markets, animal health and the new Genzyme.
At the end of 2010, the United States Securities and Exchange Commission requested for Berkshire to verify among its equity positions the contributors to what the SEC found at the time were in a gross unrealized loss position as of Dec. 31, 2009 and Sept. 30, 2010. At the time, the SEC indicated Berkshire had $977 million in gross unrealized losses in equity securities, which needed to be addressed.
Sanofi was one of the stocks that Berkshire listed. In the SEC letter dated Jan. 2011, it stated:
“Sanofi-Aventis, a large global pharmaceutical company, reported strong earnings in recent periods. Its earnings per share in 2009 increased about 18% versus 2008 and for the first nine months of 2010, earnings per share increased about 9% over the same period in 2009. Berkshire believes that Sanofi-Aventis possesses a significant economic franchise and potential for continued growth in earnings and earnings per share. Berkshire does not believe there are significant negative considerations that are unique to Sanofi-Aventis.”
In its letter to shareholders released September 2012, Sanofi reported increases in total sales in all of its segments for its second quarter, but suffered a 17.7 percent decrease in business earnings per share. Its third quarter results are not much different, excelling in sales, but experiencing a 12 percent lower business earnings per share compared to year-over-year data.
Sanofi has an annual revenue growth of 20.57 percent. Its stock is nearing its five-year high, trading at $45.33. Its dividend yield is 3.2 percent, close to a 10-year low, and its Warning Signs indicate a declining gross margin, a divergent cash flow and an Altman Z-Score in distress.
To review Sanofi’s financial data, visit its 10-Year Financials page.
The Health Stocks That Disappeared from Berkshires Portfolio
Berkshire sold out the following healthcare stocks in 2010:
Some information in the article was derived from results using the GuruFocus All-in-One Screener. The premium feature allows members to use 120 filters to screen for stocks of all kinds. Whether simple or elaborate, the screener filters stocks according to fundamentals, profitability, growth, valuation, price, dividends, Gurus and Insiders.
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Guru Discussed: Warren Buffett: Current Portfolio, Stock Picks
Stocks Discussed: DVA, GSK, JNJ, SNY, WLP, UNH, BDX,