More than two full years have transpired since Buffett hired two
relatively unknown managers to begin investing funds for Berkshire
), allowing for a slightly clearer picture of their strategies and
performance. This year solidified that their tenure as Berkshire
portfolio managers has begun on a positive note.
Buffett, when he has mentioned the two men, has indicated he
made as good a decision selecting them as most of his investments.
In his 2012 letter he gushed:
"Todd Combs and Ted Weschler, our new investment managers,
have proved to be smart, models of integrity, helpful to
Berkshire in many ways beyond portfolio management, and a perfect
cultural fit. We hit the jackpot with these two. In 2012 each
outperformed the S&P 500 by double-digit margins. They left
me in the dust as well.
Consequently, we have increased the funds managed by each to
almost $5 billion (some of this emanating from the pension funds
of our subsidiaries). Todd and Ted are young and will be around
to manage Berkshire's massive portfolio long after Charlie and I
have left the scene. You can rest easy when they take over."
Berkshire shareholders and Buffett enthusiasts have eagerly
watched to see how the heirs to the financial legend would compare.
Below is a review of another year of their equity investing
Review of Combs and Weschler's stocks
DaVita HealthCare Partners Inc. (
Though once the managers' stocks were distinguishable from
Buffett's due to their small quantity, DaVita has worked its way up
to become Berkshire's eleventh largest holding. Weschler amassed
36,514,700 shares of DaVita since beginning the position in the
fourth quarter of 2011, giving him a 9.75% stake in the
Though a long-term thinker, the investment has already paid off
in spades. Weschler has a 73% gain on his lowest average price
paid, and a 33% gain on his average price paid of $46.53, based on
Friday's price of $61.69 per share.
DaVita is a fast-growing U.S. kidney care company that in Nov.
2012 acquired the nation's largest medical group and physician
network company, HealthCare Partners, which expanded its reach to
areas of health care outside of kidney treatment. Both DaVita and
HealthCare Partners focus their business on cutting health care
costs through reducing hospital stay time by offering coordinated
primary and specialty care for chronic illness patients.
In the following nine months, DaVita HealthCare Partners
reported $512.9 million in earnings, compared to $457.4 million in
the corresponding period of 2012. Total net revenues also increased
to $8.7 billion from $5.7 billion, while its operating margin
jumped to 17.5% from 12.3% in the same periods. The company's cash
balance grew to $970.7 million from $382.2 million, and its total
debt grew to $8.5 billion from $5.75 billion.
DaVita also continues to expand its business. As of Sept. 30 it
hosts about 166,000 patients at 2,108 outpatient dialysis centers,
which grew from 150,000 patients at 1,912 outpatient dialysis
centers at Sept. 30, 2012.
The Baron Funds initiated a stake in DaVita in the third
quarter. The fund's Neal Kaufman concurred with Weschler on the
worthiness of DaVita, commenting:
"We think DaVita is well positioned to capitalize on trends in
U.S. healthcare. The dialysis business generates steady growth
driven by the increased prevalence of diabetes and has additional
growth opportunities from international expansion and integrated
care. HCP contracts with health plans and is accountable for the
healthcare of its patients in exchange for a fixed fee. In this
way, HCP is incentivized to deliver high quality healthcare at low
cost. We think DaVita has an opportunity to bring HCP's successful
model into new markets and is well positioned to benefit from the
shift from fee-for-service reimbursement to risk-sharing and
DaVita has a P/E of 22.7, P/S of 1.17 and P/B of 2.99, which is
close to a three-year low.
Year-to-date gain: 11%
DirecTV has also expanded in size, now occupying the eighth spot
in Berkshire's portfolio. Berkshire holds 36,514,700 shares of the
company after buying since the third quarter of 2011, giving it
6.65% ownership of the company. The stock has gained 40% from
Berkshire's average buy price of $47.04, based on Friday's price of
DirecTV is the world's largest pay TV provider, with over 37
million subscribers, and is split into two businesses: DirecTV U.S.
and Latin America, and DirecTV Regional Sports Networks. The
company has grown rapidly and estimates that it has significant
room for growth in Latin America, where Pan American countries
excluding Argentina and Venezuela have just 32% pay-TV penetration.
By 2016, it hopes to have doubled its subscriber base to 8 million,
in spite of strong competitors in most local markets.
For the first nine months of 2013, DirecTV made $23.16 billion
in revenues, greater than $21.69 billion in the corresponding
period of 2012, due to higher ARPU at its U.S. segment and
subscriber growth at both its Latin American and U.S. segments.
Earnings were slightly higher over the same period at $2.069
billion compared to $2.029 billion, and operating profit margin was
slightly lower at 16.5% compared to 17.5%. Free cash flow declined
to $1.61 billion from $1.74 billion.
It ended the quarter with $18.6 billion in long-term debt and
$1.6 billion in cash.
Another DirecTV investor, Mason Hawkins of Longleaf Partners,
said of the company in his third quarter letter: "DIRECTV slipped
3% on increased subscriber churn amidst a challenged Brazilian
economy. DIRECTV Latin America remains well positioned to benefit
from rising pay-TV penetration in the region, and the mature U.S.
business continues to generate higher ARPU (average revenue per
DirecTV has a P/E of 12.6 and P/S of 1.2, which is close to a
Year-to-date gain: 32%
) and MasterCard (
Visa and MasterCard are about even in the portfolio, at 0.32%
and 0.3% weighting, respectively. The MasterCard stake was acquired
in the first and second quarters of 2011, and Visa in the third and
fourth quarters of the same year. Both have played out incredibly
well. Visa has gained 145% from the average buy price of $88.30
based on Friday's share price of $216.08, and MasterCard has gained
212% since the average buy price of $257.81, based on Friday's
share price of $805.38.
Visa, the global payments technology company, saw the number of
transactions processed with its cards in the year ended Sept. 30,
2013 increase 10% over 2012 to 58 billion. Its annual earnings
totaled $5.0 billion, an 18% increase over the prior year. Net
operating revenue was $11.8 billion, a 13% increase which can be
broken down into revenue growth of 10% for service, 17% for data
processing, 12% for international transactions and 2% for other,
including Visa Europe licensing fees.
Visa holds cash of $2.2 billion, and liabilities of $9.1
The company has a P/E ratio of 28.5, P/B ratio close to a
10-year high at 6.09, and P/S close to a three-year high at
Visa year-to-date gain: 42.5%
MasterCard, another electronic payments company, continued to
see steady growth this year. In the first nine months, its number
of transactions processed increased 13%. It also had a 13% increase
in net revenue to $6.2 billion, broken down into gross dollar
volume growth of 14%, and cross-border volume growth of 18%.
MasterCard net income rose 15% to $2.5 billion, excluding a
litigation charge from 2012.
MasterCard has cash assets of $3.4 billion and total liabilities
of $6.06 billion, as of Sept. 30.
Its P/E is 31.9, P/B is 12.7 and P/S is near a 10-year high at
MasterCard year-to-date gain: 66%
It is speculated that Verisign (
) and Viacom (
) round out the Weschler and Combs holdings embedded within the
Berkshire portfolio. These two stocks this year have gained 53% and
See more stocks of Warren Buffett's Berkshire Hathaway here.
Also check out the Undervalued Stocks, Top Growth Companies and
High Yield stocks of Warren Buffett.
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