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Dialysis patient. Source: DaVita Healthcare Partners

If you're in the market for some great stock ideas for your portfolio, it makes sense to study what the smartest and most successful investors own. Few, if any, investors are smarter or more successful than Warren Buffett, whose Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) has averaged annual gains topping 18% for 30 years. (That's enough to turn a single $1,000 investment into more than $140,000!) DaVita Healthcare Partners (NYSE:DVA) is one of the biggest Buffett stocks, so let's see if it's worth buying, too.

First off, though, understand that Berkshire Hathaway is an unusual company, as it is primarily engaged in insurance (think GEICO, for example), but also owns a lot of stock in public companies, as well as many companies in their entirety, such as Dairy Queen, Benjamin Moore, Fruit of the Loom, and the Burlington Northern Santa Fe railroad. It's easy to see what Berkshire's top stock holdings are, not only via Buffett's annual letters to shareholders, but also in the company's quarterly 13F reports. The 13F for the quarter that ended on June 30 showed that Berkshire's DaVita Healthcare Partners holding was its ninth-largest, valued then at roughly $2.7 billion. With about 37.5 million shares, Berkshire owned more than 17% of the company.

Before you ask why Buffett bought DaVita, know that he didn't, exactly. In the past few years, Buffett has taken on two investing lieutenants, Ted Weschler and Todd Combs, and has given them increasingly large piles of cash to invest. At last report, each managed $7 billion or more. DaVita seems to be a Weschler pick, and Fortune magazine recently estimated that Berkshire's investment in the company has gained more than 35%.

Davita Legislative
Photo: DaVita Healthcare Partners.

Why might you buy DaVita Healthcare Partners?
DaVita is one of the top two dialysis providers in the United States, with roughly a third of the market. It operates or provides administrative services at more than 2,000 outpatient dialysis centers around the nation. serving more than 165,000 patients. The company is an international enterprise, too, with 84 outpatient dialysis centers in 10 countries outside the U.S.

There are some clear reasons why Weschler, Buffett, or any other investor might buy into DaVita. For one thing, it's in a very sturdy line of business: providing dialysis services to a growing elderly population. Weschler has noted that the company provides exceptional services and saves the healthcare industry money, and that it offers predictable growth and a relatively high return on capital.

The company's top line has indeed grown every year over the past decade. Its bottom line has fluctuated a little more, but has been rising, overall. Over the past decade, revenue and earnings averaged annual growth of roughly 19% and 14%, respectively, which is rather good.

What is DaVita doing right? One promising move was its 2012 acquisition of HealthCare Partners, a physician management group that aims to lower costs of care while focusing on maximizing positive outcomes. It's a major player in its field, and other large healthcare companies are increasingly likely to profit from its services.

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Photo: Flickr user ILoveButter

Why might you not buy DaVita Healthcare Partners?
DaVita isn't perfect, though. Its return on invested capital, for example, is a bit below that of competitor Fresenius Medical Care and has been slipping in recent years. Gross margins and net margins are also lower than they were a few years ago.

DaVita also faces some threats beyond its control, such as Medicare reimbursement rates. With about 85% of dialysis patients using Medicare, these rates are closely tied to the fortunes of dialysis providers.

Just because Berkshire Hathaway is a major investor in DaVita Healthcare Partners doesn't mean you should automatically buy into it, but it's worth a look. With a recent P/E ratio of 24 and a forward-looking P/E of 19, it doesn't appear to be a bargain, as its five-year average P/E is 18. But it's not grossly overvalued, either. If you like the company's prospects, you might want to buy in gradually over time, or perhaps add it to your watchlist and wait for a pullback.

Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter, owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.