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 Inc (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 Inc. (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 plc (ADR) (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 SA (ADR) (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.