Super-investor Warren Buffett has made a big bet on
Johnson & Johnson (
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 (
SNY
)
and to his position in medical-device maker
Becton Dickinson & Co. (
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 (
AXP
)
,
U.S. Bancorp (
USB
)
and of course, the $8.2 billion stake in
Wells Fargo (
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 (
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 (
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 (
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 1.3
million shares through the Bill and Melinda Gates Foundation, which
also owns 15.7 million shares of
Waste Management (
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 (
COP
)
, which he bought during the run-up in oil prices and has said it
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 (
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 (
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
Andy spent a decade as a financial journalist writing for some of
the largest newspapers in the nation. His market acumen helped
guide the financial news read by over a million... Read more.
Disclosure: Neither Andy Obermueller nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.
StreetAuthority