Daily Management Review

Berkshire Hathaway bets $5.7B on pharma in anticipation of COVID-19 vaccine


For the first time in several years Warren Buffett's company has made a major stake in the pharmaceutical industry. It has invested almost $6 billion in four companies, including two developers of COVID-19 vaccines.

Warren Buffett's investment company Berkshire Hathaway invested $5.7 billion in four American pharmaceutical companies in the third quarter of 2020, the Financial Times reports citing a document filed with the US Securities and Exchange Commission. The company bought 21.3 million shares in AbbVie, 30 million shares in Bristol-Myers Squibb, 22.4 million shares in Merck and 3.7 million shares in Pfizer. 

As the newspaper notes, this is one of Buffet's most significant investments in the pharmaceutical industry over the past few years. Not least, this decision was dictated by the pandemic: Pfizer and Merck are developing a coronavirus vaccine. Earlier Pfizer announced that its candidate vaccine was over 90% effective, after which the company's shares increased by 15%. The new investment in companies that do not develop vaccines means that Berkshire Hathaway is counting on the profit growth of the entire pharmaceutical sector against the background of the fight against COVID-19, says The Wall Street Journal. 

By making this purchase, Berkshire Hathaway more than doubled its investment in the pharmaceutical sector in the third quarter, FT writes. In total, the company has invested $9.3 billion in this area and has already held stakes in Biogen, Johnson & Johnson and Teva Pharmaceuticals and DaVita pharmaceutical companies. 

At the same time as it made a major investment in pharmaceuticals, Buffet continues to reduce its shares in banks. In the first quarter of 2020, Berkshire Hathaway sold 84% of its shares in Goldman Sachs. In the third quarter, according to FT, the Oracle of Omaha sold 110.2 million shares of Wells Fargo (almost half of its share), 21.2 million shares of JPMorgan and shares of PNC Financial and M&T Bank.

As the publication notes, Buffet was one of the largest shareholders of Wells Fargo, but now Berkshire Hathaway owns only 3.1% of the bank. In 2020, the U.S. banking sector faced serious difficulties: interest rates fell, the KBW bank index fell by 35.5% from the beginning of the year to the end of September, writes FT. In the third quarter, Berkshire Hathaway increased its investments only in the Bank of America, the second largest asset by number of shares in its portfolio. It bought 85 million shares, increasing its share to 11.7%.

Berkshire Hathaway also reduced its stake in Apple by selling 36.3 million shares. However, Apple, along with the Bank of America and Coca-Cola, remains the company's largest investment, writes The Wall Street Journal.

source: wsj.com