We recently compiled a list titled Buffett Stock Portfolio: Top 10 Stock Picks for 2024. In this article, we will look at where DaVita Inc. (NYSE:DVA) ranks among the top 10 stocks in Buffet’s portfolio.

Warren Buffet is one of the most accomplished investors in the history of Wall Street. According to Bloomberg’s Billionaire Index 2024, the Oracle of Omaha has a net worth of $143 billion, making him the ninth richest person in the world. His wealth would have been much more had he not decided to donate most of his vast fortune to charities. Since 2006, Buffet has donated over $55 billion to various charitable organizations, with a majority of the gifts going to the Bill & Melinda Gates Foundation.

Buffet rose to prominence in 1965, after transitioning his investment firm into a conglomerate that held stakes in companies belonging to a broad range of industries. Between then and 2023, his firm earned average annual returns of 19.8%, outperforming most stock indices that delivered returns around the 10 percent mark during this period. However, this year, Buffet seems to be in a defensive mode and is currently in the news for his sell-off spree, significantly reducing his investments in several notable companies.

There have been mixed opinions about Buffet hunkering down on stocks. Edward Jones analyst, Jim Shanahan, said that the actions make him ‘concerned’ about Buffet’s outlook for the stock market and the American economy. In contrast, Daniel Ives, a Wedbush analyst, is less worried and believes that despite the selling spree, Berkshire still holds the top positions in those stocks by large margins, which should not be viewed as a ‘smoke signal for bad news ahead’.

So what will Warren Buffet do with all that cash? Andrew Bary, the associate editor at Barron’s, recently stated that the billionaire has been on the look for a major acquisition for some while now, which has so far proven elusive. He believes the Berkshire CEO may just hold the cash for some while, earn interest on Treasury Bills, and wait for potential opportunities to grab in the stock market.

Another factor that has likely contributed to Warren Buffet dumping stake in some of his top stocks is the speculation around the increase in capital gains tax. The debate on the tax rate has been on for some time now and has even become a talking point in the run-up to the presidential elections. Vice President, Kamala Harris, during a speech in New Hampshire this month, proposed to raise the long-term capital gains tax for wealthy individuals to 28%.

The current tax rate is 21% when a gain is realized. Massive gains over the long term result in a large tax. Warren Buffet invested in stocks he is currently selling a long time ago, and hence, is sitting on handsome gains. The rationale behind selling these stocks could be to capitalize on the gains as much as possible on the current low tax rate, instead of paying hefty taxes later if the rate were to be increased.

Methodology

We scanned Warren Buffet’s portfolio, as of June 30, 2024, and picked the top 10 stocks according to their stake value. The figures were sourced from the Insider Monkey Database.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

DaVita Inc. (NYSE:DVA)

Stake Value as of Q2 2024: $5,001,763,135

DaVita Inc. (NYSE:DVA) is an American healthcare company focused on transforming care services to improve the lives of patients in need. It is one of the largest kidney dialysis providers in the US, with 2,675 outpatient centers nationwide, resulting in a 35% market share in the dialysis market. DaVita also operates an additional 367 outpatient centers overseas in 11 other countries. It is among the top picks from the Buffet stock portfolio, with the billionaire having investments of over $5 billion in the company.

After establishing a stronghold in the American market, the company is now focused on expanding its global footprint through strategic acquisitions, especially in Latin America. In March this year, DaVita announced the signing of a deal worth $300 million, involving four separate acquisitions from Fresenius Medical Care, allowing the company to enter the Chilean and Ecuadorian markets, while expanding operations in Brazil and Colombia. This will make DaVita Inc. (NYSE:DVA) the largest dialysis service provider in Latin America, serving over 60,000 patients in more than 270 clinics.

This has led to a general bullish sentiment around the stock. Ariel Global Fund stated the following regarding DaVita Inc. (NYSE:DVA) in its first quarter 2024 investor letter:

Leading provider of dialysis services, DaVita Inc. (NYSE:DVA) outperformed during the period following a top-and-bottom-line earnings beat. DaVita is benefitting from cost-saving initiatives, early signs of normalization in patient growth trends on par with pre-pandemic levels, improved leverage, and an aggressive share buyback program. The company also recently announced an expansion of its international operations in Latin America, presenting an attractive long-term growth opportunity. Furthermore, management provided a 2024 financial outlook that is well above consensus and anticipates favorable growth. In our view, we believe the market misunderstands the long-term clinical impact of glucagon-like-peptide-1 (GLP-1s) on dialysis and as such, DaVita currently trades at a significant discount relative to our estimate of its intrinsic value.

The healthcare provider had a stellar Q2 as well, during which it generated an operating income of $506 million, on the back of continued strength in revenue per treatment (RPT), which enabled the company to post an EPS of $2.59, beating analysts’ expectations of $2.47 per share. CEO Javier Rodriguez attributed RPT growth to two factors: improvement in the company’s collection capabilities, and higher rate increases amid rising inflation. The company also ended the quarter with $654 million in free cash flow, reflecting its solid financial position.

Some areas of concern remain, however. The company continues to face high inflationary pressures and has not been able to fully recoup the impact of high inflation even after rate increases. DaVita’s Integrated Kidney Care (IKC) business has also made a $60 million loss, year-to-date, due to revenue recognition timings and higher mortality rates.

Despite that, DaVita Inc. (NYSE:DVA)’s overall outlook is positive, and the management remains confident it is on track for further growth. It has revised its 2024 guidance and anticipates operating income for the full year to be in the range of $1.91 billion to $2.01 billion, up from initial forecasts of $1.88 billion to $1.98 billion.

Overall, DVA ranks 10th among the Buffett Stock Portfolio: Top 10 Stock Picks for 2024. While we acknowledge the potential of DVA as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DVA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published on Insider Monkey.