By William Patalon III Executive Editor Money Morning/The Money Map Report
Warren Buffett's Berkshire Hathaway Inc. (BRK.A, BRK.B) has taken an 8.6% stake in Kraft Foods Inc. (KFT), making it the foodmaker's biggest shareholder.
In a regulatory filing made late last week, the Omaha-based Berkshire also revealed that it had acquired a $76.1 million stake in GlaxoSmithKline PLC (GSK), Europe's largest drugmaker.
That followed investments in several health-care companies over the last year, including drugmakers Johnson & Johnson (JNJ) and Sanofi-Aventis SA (SNY), as well as health insurers UnitedHealth Group Inc. (UNH) and WellPoint Inc. (WLP), the Reuters news service reported.
According to a recent study, buying what Buffett has bought - even a month after his purchases - is a pathway to superior returns. In fact, over the past three years, this strategy has delivered double the return of the Standard & Poor's 500 Index, according to research by professors at both American University and the University of Nevada at Las Vegas.
Even with that one-month lag, an investor who mimicked the moves of this market master would eclipse the S&P 500 returns by 14.26%, the study concluded. [For a copy of a recent Money Morning investment research report on this topic, please click here. The report is free of charge].
In its filing with the U.S. Securities and Exchange Commission, Berkshire said it owned 132.4 million shares of Kraft as of Dec. 31, worth $4.32 billion at the time. That implies that the market price of the Kraft shares at that time was $32.63 [$4.32 billion/132.4 million shares = market price at the time of $32.63].
However, Berkshire said that it had accumulated more than half of that stake by June 30, but it didn't disclose the investment until now. Securities regulators have often allowed Berkshire to delay the disclosure of its investment purchases so that Buffett can be certain that he's done adding to his initial positions in a given stock.
The Berkshire stake in Kraft is more than double the size of the holding attributed to State Street Global Advisors (STT), the next-largest shareholder, according to Thomson ShareWatch.
Kraft, based in Northfield, Ill., is just the kind of brand-oriented company that Buffet likes to buy: It has a pantry of well-known products - including Oreo cookies, a reputed Buffett favorite - and the stock is out of favor. The company's product array includes Maxwell House coffee, Oscar Mayer deli hot dogs and deli meats and Kraft-brand cheeses.
"This is a company with leading, high-quality brands with depressed margins," Matt Arnold, an analyst at Edward D. Jones & Co., told Reuters. Kraft Foods "offers significant value if management can restore profitability and drive the top line with product innovation."
Rising dairy prices have hammered Kraft, as they have such firms as Dean Foods Co. (DF), the biggest U.S. dairy producer. On Jan. 30, Kraft posted a 6% decline in fourth-quarter profits after a jump in dairy costs that exceeded 40% neutralized an 11% increase in revenue.
Escalating dairy prices are especially hurtful to a company such as Kraft, which gets about 20% of its revenue from its cheese products. Growing demand for dairy products in China is a big part of the reason dairy prices have soared.
Kraft is a spin-off from Altria Group Inc. (MO), which went public in June 2001 at $31 a share. Kraft shares gained $2.02 [a 6.89% increase] to close Friday at $31.33. Berkshire owns big stakes in such other big consumer-products as Coca-Cola Co. (KO) and Procter & Gamble Co. (PG). Buffett is now worth $52 billion according to Forbes magazine.
Since taking over Berkshire Hathaway in 1965, he has transformed the once-wheezing textile manufacturer into an investment vehicle that controls an amalgamation of more than 70 portfolio companies. Berkshire has a market value of nearly $220 billion.
The Moves of a Master: Recent Deals by Warren Buffett's Berkshire Hathaway
Sources: Money Morning, Google Finance, The Financial Post.
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