If you asked Warren Buffett which stock he likes best during the coronavirus pandemic, he'd almost certainly reply that it's Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B). After all, the Berkshire chairman and CEO led the company to buy back more than $5 billion of its own shares in the second quarter of 2020.
But what if you asked Buffett which stocks he likes best among companies that are developing diagnostic tests, therapies, and vaccines to fight COVID-19? To my knowledge, no one has presented this question to the billionaire investor. However, it's easy to figure out what his answer would probably be. Here are Warren Buffett's favorite coronavirus stocks -- based on where Berkshire has invested.
A very short shortlist
Buffett's shortlist of favorite coronavirus stocks is very short. There are only two stocks in Berkshire's portfolio that are directly involved in developing potential tests, treatments, or vaccines for COVID-19: Biogen (NASDAQ: BIIB) and Johnson & Johnson (NYSE: JNJ).
Vir Biotechnology announced in March that it planned to team up with Biogen to manufacture human monoclonal antibodies that could potentially be used in treating COVID-19. The two companies finalized an agreement in May.
The collaboration with Vir isn't Biogen's only coronavirus-related initiative. In April, the biotech announced a consortium with Broad Institute of MIT and Harvard and Partners HealthCare to build a COVID-19 biobank. The purpose of this biobank was to help scientists in researching potential vaccines and therapies targeting COVID-19.
Johnson & Johnson's COVID-19 efforts have received more attention. The healthcare giant expanded its existing partnership with the Biomedical Advanced Research and Development Authority (BARDA) in February to accelerate research into potential COVID-19 treatments.
The bigger story for J&J, though, is its COVID-19 vaccine program. The company plans to begin large-scale late-stage testing of its COVID-19 vaccine candidate, Ad26.COV2-S, in September. On Aug, 5, J&J signed a deal with the U.S. government to supply 100 million doses of its vaccine pending FDA authorization for $1 billion.
The safer pick
Berkshire owns a much bigger stake in Biogen than it does in Johnson & Johnson. Several years ago, Buffett became disenchanted with J&J after several missteps by the company.
But Johnson & Johnson has handily outperformed Biogen when it comes to stock performance in recent years. The gap is even wider factoring in the reinvestment of dividends that J&J pays.
Biogen could be the bigger winner in the future. However, the fortunes for the biotech largely hinge on FDA approval of aducanumab in treating Alzheimer's disease. There's a good reason to be nervous about this approval: Biogen actually came close to throwing in the towel on aducanumab last year after it flopped in a late-stage study.
Johnson & Johnson is without question the safer pick. It's a blue chip stock with a long track record of success. Unlike Biogen, J&J isn't heavily reliant on one pipeline candidate. The company is diversified across multiple areas within the healthcare sector -- consumer health, medical devices, and pharmaceuticals.
Another coronavirus stock Buffett should like
There's another coronavirus stock that isn't currently in Berkshire's portfolio that Warren Buffett should like. Abbott Labs (NYSE: ABT) markets several COVID-19 diagnostics tests. It recently won FDA emergency use authorization for a potential game-changer with its $5 coronavirus antibody test that can deliver results in only 15 minutes.
Like J&J, Abbott is a blue chip stock with a long and storied history. It should also generate impressive growth over the next decade with products including the Freestyle Libre continuous glucose monitoring system and its COVID-19 tests. If Buffett seriously entertained adding another coronavirus-focused healthcare stock to Berkshire's holdings, Abbott would be an excellent candidate.
10 stocks we like better than Abbott Laboratories
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Abbott Laboratories wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of August 1, 2020
Keith Speights owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Biogen. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short September 2020 $200 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.