After news hit Wednesday that Warren Buffett's Berkshire Hathaway had made a $358 million investment in Israel-based drug company Teva Pharmaceutical Industries, a skepticism lingered even as shares of the heavily shorted stock soared.
What does Berkshire Hathaway see in an out-of-favor drug stock that has languished — Teva shares have declined by roughly half in the past year — that the rest of Wall Street doesn't?
Maybe nothing special. And the size of the bet — at $358 million — is within the discretionary stock selling mandates of Buffett's hedge fund lieutenants, Ted Weschler and Todd Combs. But the bet is consistent with Buffett's long history of value investing, albeit with a twist.
Buffett has been associated with a few drug stocks. He is a longtime holder of Johnson & Johnson, though he has cut that stake significantly in recent years. He once held GlaxoSmithKline, and that was first purchased before he brought on the hedge fund managers, but was eliminated as a stock holding in 2014. And interestingly, the only ADR that Berkshire currently holds in its stock portfolio is an overseas drug stock, France-based Sanofi. It isn't a big stake — about half the size of the Teva buy, and it also has been reduced over time — but has been in the Berkshire stock portfolio for years.
Since the drug industry has not traditionally been a big focus for Berkshire, it suggests the investment is led by Combs, 47, and 55-year-old Weschler, the younger generation of stock pickers to which the 87-year-old Buffett has been giving more power over Berkshire's giant portfolio of stock bets, said Lawrence Cunningham, author of Berkshire Beyond Buffett: The Enduring Value of Values.