Berkshire Hathaway (NYSE: BRK-B)
has been betting big on the healthcare sector by investing in
just one stock.
Berkshire Chairman Warren Buffett
hasn't made many investments in the healthcare sector. In fact,
none of Berkshire's biggest holdings include healthcare
companies. But investment manager Ted Weschler, who joined
Berkshire as an investment manager in 2011, loves the sector.
heavily in a mid-cap stock called
DaVita HealthCare Partners (
. Unlike big drug companies such as
, DaVita isn't a household name.
But the company is a well-known provider in the niche business
of kidney care. Put simply, DaVita provides dialysis treatments
to patients with kidney failure. The company currently serves
168,000 patients through 2,074 centers in the U.S.
With just 73 centers outside of the U.S., international
expansion remains a growth opportunity for the dialysis stock. In
the last year, the company has expanded its operations to
countries including Saudi Arabia, Malaysia, Colombia, Portugal
The company's strong position in the U.S. and growth
opportunity overseas has attracted Weschler to the stock.
Over the last two years, Berkshire Hathaway has bought up 37.6
million shares of DaVita HealthCare Partners. That's enough to
put give Berkshire a 17.7% stake of the company, currently valued
at $2.56 billion.
Berkshire's latest reported purchases of DVA stock were in
late February. At the time, DVA stock traded between $67 and $69.
And Berkshire reportedly bought an additional 1.13 million
While Weschler is
on DVA stock, Berkshire doesn't plan to buy the entire company.
Last May, Berkshire agreed to not increase its stake above 25%.
The company also agreed to not request a seat on DaVita's board
It seems that Weschler and Buffett simply like the stock…and
want to be passive shareholders for years to come. Why do they
like it? This is what Weschler said in a CNBC interview earlier
"The broad filters that I apply for healthcare
investing in general is, No. 1: Does the
healthcare company deliver better quality of care
than someone could get somewhere else? And DaVita
falls into that.
No. 2: Does it deliver a net savings to the healthcare
system? In other words, is the total bill
for U.S. healthcare cheaper because of the efficiency
the company provides? DaVita
checks that box.
"And lastly: Do you get a higher return on capital,
predictable growth and shareholder-friendly management?
- Ted Weschler on CNBC, March 3, 2014
DVA stock has been a handsome performer. Over the last two
years, the stock is up 57% versus a gain of 34% for the S&P
It's the company's strong financial performance that has
attracted investors, including Berkshire. Over the last three
years, the company's revenues jumped 74% and net income rose 33%.
That rapid growth continued in the latest quarter, with revenues
up 24% and EPS rising 27%.
Shares of DaVita currently trade at around $68, or roughly the
same price where Berkshire recently bought more stock. Based on
2014 EPS estimates of $3.72, the stock trades at a P/E multiple
While the stock isn't a bargain, it seems like a fair
valuation for a
with healthy growth prospects. If you're seeking exposure to the
healthcare sector, DaVita HealthCare Partners is a stock to
consider buying at these levels. After all, you could do much
worse than following in the footsteps of Warren Buffett.
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