When the oracle speaks, stock markets listen, and the latest quarterly filing from Warren Buffett's investment company Berkshire Hathaway proved no exception.
The septuagenarian businessman, known as the Oracle of Omaha and accorded guru status by a following of small and large investors, has taken a stake in the UK's GlaxoSmithKline, it was revealed, sending the drug maker's shares higher as the rest of the market fell yesterday.
The small investment – worth about $76m (£38m), less than 0.1 per cent of GSK's shares – is an important shot in the arm for the pharmaceuticals giant at a time when other investors have been walking away and its shares have been languishing at three-year lows.
The company issued a profit warning last week, blaming safety concerns that are crimping sales of the diabetes drug Avandia. However, departing chief executive Jean-Pierre Garnier made an upbeat pitch to long-term investors, saying the company's vaccines business and its consumer healthcare division – the maker of Lucozade energy drinks, Beechams cold medicine and Aquafresh toothpaste – would grow strongly in the future.
With his trademark homespun charm, Mr Buffett insisted that he invests only in companies he can understand, established businesses that have become undervalued, particularly those that have robust underlying cash flows. GSK shares are down by a quarter over the past year.
The company's shares rose 1 per cent as news of its new investor became public, closing up 11p at 1,112p, one of the best performances by a FTSE 100 company yesterday.
On the other side of the Atlantic, shares in Kraft Foods – one of the world's biggest food companies, manufacturer of Ritz biscuits and Maxwell House coffee, among dozens of brands – were also enjoying the Buffett effect after it was revealed that Berkshire Hathaway had become its largest shareholder. Mr Buffett has been secretly building a stake since last spring, and now has an 8.6 per cent holding worth $4.5bn. Regulators in the US allow investors to keep stakebuilding activity a secret so as not to push the share price in the target company higher, but their agreement on Kraft expired this week and the disclosure of Mr Buffett's interest sent the stock up 6.9 per cent.
Nebraska-based Berkshire Hathaway has a long tradition of investing in food and drink stocks and the $68.8bn portfolio still includes big stakes in Anheuser-Busch, maker of Budweiser beer, and Coca-Cola, which Mr Buffett advertises at his annual shareholder meetings by ostentatiously drinking Cherry Coke.
Mr Buffett is likely to have made a loss so far on his stake in Kraft, whose shares have fallen by 15 per cent over the past year as rising ingredients costs have put a squeeze on margins. Berkshire Hathaway does not disclose which of its many subsidiaries holds the shares it has been buying.Reuse content