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3 Things Buffett Likes About Health Care

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Warren Buffett knows what he likes -- and he gets what he likes. While he is widely known for investing in consumer product companies, another industry has also captured his attention and his money. Here are three things Buffett really likes about health care.

1. Keep it simple
Buffett likes to keep things simple and understand the business before he buys. DaVita Healthcare Partners (NYSE: DVA  ) is a great example of this desired simplicity. The company provides dialysis services for patients with chronic kidney disease or end stage renal disease. Patients with these diseases can't survive without dialysis. DaVita provides the service. It doesn't get much more simple than that.

Buffett's Berkshire Hathaway (NYSE: BRK-B  ) owns 14% of DaVita, valued at more than $1.9 billion and growing. The stock has a one-year return of nearly 34%.Keeping it simple can pay off.

2. Investing for the long run
Some might look at a company like GlaxoSmithKline (NYSE: GSK  ) and run for the hills. Just last year, the British pharma lost an estimated $35 billion in sales due to generic competition as key drugs lost patent protection. But Buffett first bought the stock in 2008 -- with full knowledge that the patent cliff was coming. Why? Buffett looks at the long run. His ideal holding period is "forever." 

His position in GlaxoSmithKline isn't huge -- just 1.5 million shares valued at around $71 million. And the stock hasn't done much over the past year, with shares up only 2%. However, remember that Buffett is looking at the long run. Patents may come and go, but obviously Buffett still views Glaxo as a good long-term buy.

3. Buying businesses
Buffett doesn't buy a stock. He buys a business. His aim is to buy a "wonderful company at a fair price." Sanofi (NYSE: SNY  ) seems to have hit that mark. Berkshire Hathaway bought shares in the French pharmaceutical company back in 2006 and added to its position each year through 2010. Even through Sanofi's share prices were declining during much of that period, Buffett kept on buying. As with Glaxo, he saw the long-term potential for the business and cared less about how the stock was performing in the shorter term.

The short term has looked pretty good for Sanofi lately, though. Shares are up nearly 30% over the past year. While they're not up by nearly that much compared to 2006 levels, remember that Buffett kept adding to his position when shares were dropping. By focusing on buying the business, he has done quite well with his investment in Sanofi.

Liking with open eyes
Just because Warren Buffett likes an investment doesn't mean that he's blind to problems. For example, he cut back most of his position in Johnson & Johnson (NYSE: JNJ  )  after J&J recalled products and encountered legal problems related to misleading doctors and patients about medication risks. Buffett commented that J&J still had "a lot of wonderful products and it's got a wonderful balance sheet" but that the company had made "too many mistakes."

We can't all be Warren Buffett, but we can learn from him. What he likes about health care can help us find other companies that we can like. But it's up to each of us to keep our eyes open -- and to take action. Like that other famous Mr. Buffett says (singer Jimmy Buffett): "People who think too much before they act don't act too much."

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Read/Post Comments (3) | Recommend This Article (4)

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  • Report this Comment On April 06, 2013, at 4:42 PM, doco177 wrote:

    1. Millions are and will lose the insurance Obama promised they could keep. Because ObamaCare forces employers to offer expensive Cadillac plans but also offers the option of paying a fine for not providing health insurance that can be cheaper than providing it, between seven and twenty million Americans are likely to lose their health insurance coverage according to the Congressional Budget Office. The original estimate was closer to four million.

    2. The cost of healthcare premiums is about to further skyrocket. Premium costs have already exploded, but that is a slow-motion explosion. In the near future, we could see costs double or worse. Naturally, these costs will hit an already burdened middle class hardest.

    3. Lost jobs. Lost jobs.

    The Federal Reserve's March beige book on economic activity noted that businesses "cited the unknown effects of the Affordable Care Act as reasons for planned layoffs and reluctance to hire more staff."

    Meanwhile, human resources consulting firm Adecco found that half of the small businesses it surveyed in January either plan to cut their workforce, not hire new workers, or shift to part-time or temporary help because of ObamaCare.

    4. Potential doctor shortages that will mean rationing: The healthcare industry is already a bureaucratic quagmire. ObamaCare is about to add steroids. As the profession becomes tyrannized by government, the talented people currently practicing medicine plan to get out sooner than expected. Who knows how many will choose not to get in.

    Doctor shortages are what lead to the nightmare known as rationed care. Here's an unsettling example already being practiced.

    5. Somewhere around $800 billion in tax increases will hit America's middle class. This added burden will not only further oppress a middle class already reeling from a drop in wages over the last few years, but could damage the overall economy.

    6. Inflation, the cruelest tax on the poor. When businesses get socked with added costs brought about by higher taxes and burdensome government mandates, they pass those cost along to the consumer in the form of higher prices.

    7. Added bureaucracy. Even those Obama lapdogs over at the Washington Post's Wonk Blog are admitting that applying for health care is about to get more burdensome than the byzantine paperwork involved in buying a home.

    8. To cut costs or to avoid having to provide insurance, workers on the economic margins are already losing hours, which means a lower paycheck. There are a million sad stories in ObamaVille; here are just a few of them.

    9. ObamaCare is projected to add $6.2 TRILLION to a deficit the GAO has already declared "unsustainable." That's "trillion" with a "t".

    10. More taxes than currently estimated are likely to hit because of situations like this one.

    Three years ago, Obama, Democrats, and his media lied to us about cutting the cost of health care, being able to keep our insurance, and not taxing the middle class.

    Today, those lies and what ObamaCare is and will do to the working and middle class are the biggest untold story in America.

  • Report this Comment On April 06, 2013, at 5:37 PM, abramsmm01 wrote:

    JNJ is worth another look, in this forum of high risk, high potential reward investing.

    As per the recent article, consider their pipeline and especially a drug called Ibrutinib. This drug, in pill form, has received FDA fast-track status for lymphoma and CLL. Clinical trial results have indicated that it could be a game-changer in the next few years. A quick Google search will reveal the present sentiment.

    The hard part is that biotech investing is driven more by medical research, and it's difficult to invest based on typical fundamentals here. One would really need to study clinical trials and results by disease specialty. That being said, Hematology-Oncology research is very active right now.

  • Report this Comment On April 23, 2013, at 3:25 PM, ajmorley wrote:

    Buffett isn't the one that is buying Davita. It's Todd Combs or Ted Weschler, thought it has worked out quite well since they've established the position.

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