What’s Warren Buffett Been Up To?

It’s that time of year again. Warren Buffett’s Berkshire Hathaway (BRK.A, BRK.B) just released its latest 13F filing, which outlines its buys and sells over the past quarter.

While this data is always a little bit dated by the time it's released (Berkshire’s reporting date is Sept. 30) and it does not take into account non-traded securities, derivatives or short positions, these issues matter relatively little in the case of Warren Buffett.

The Oracle, after all, is known for taking large, concentrated positions and holding on to them for a while.

So whhat has Warren Buffet Been Buying and Selling?
As of quarter end, Berkshire Hathaway had made a large new investment in Exxon Mobil (XOM) worth $3.5 billion, boosted its existing position in dialysis provider DaVita HealthCare Partners (DVA) by nearly a quarter, and reduced his holdings in ConocoPhillips (COP) and GlaxoSmithKline (GSK).

And since quarter’s end, Warren Buffett has been busy. Berkshire added yet more shares of DaVita on Nov. 8 and initiated a new position in Goldman Sachs (GS) on Oct. 8.

What It All Means
To start, Buffett still is bullish on financials. Financial services represent nearly 40% of the Berkshire traded stock portfolio, led by Wells Fargo (WFC), which alone accounts for 21% of the portfolio. Buffett is holding tight to IBM (IBM), his largest recent investment, despite its terrible performance this year. And Buffett — or one of his lieutenants — still is very bullish on DaVita’s dialysis business, despite its dependency on Medicare as a payer.

I am inclined to agree. DaVita has been a recommendation of the Sizemore Investment Letter since May.

I’m not privy to Berkshire Hathaway’s investment committee meetings, but it’s not hard to understand their bullishness. Dialysis is a business that is anything if not predictable. Patients must have the procedure done regularly, and there are generally only two ways off: a transplant or death.

Earlier this year, DaVita got a kick to the teeth when Medicare proposed reducing its payments by over 9%. Medicare and Medicaid together account for about two-thirds of revenues. But demographic trends practically guarantee that DaVita’s revenue stream will explode in the years ahead, even if margins are somewhat crimped.

Kidney disease can affect any American at any age, but it is a bigger problem among the middle-aged and elderly. According to the Kidney End-of-Life Coalition, 45% of the more than 320,000 patients receiving dialysis therapy in the United States are over the age of 60, and the fastest growing segment of the dialysis population to be among patients aged 75 and older.

Meanwhile, the largest cohort of the baby boomers still are in their early 50s and not too far removed from their physical prime. But the front end of this generation is in its late 60s, and with every passing year a larger number of baby boomers find themselves at risk of chronic diseases like kidney disease.

Buffett and his team appear to be betting that these demographic forces will outweigh the effects of a stingier Medicare program.

I, for one, agree.

Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he did not hold a position in any of the aforementioned securities.