Tuesday February 19, 2008
"Warren Buffett has bought 1.51 million ADRs of GlaxoSmithKline (NYSE: GSK)," notes international expert Vivian Lewis who holds the stock in her Global Investing model portfolio.
"GSK is off 22% since our purchase late in 2006, so how nice that the Oracle of Omaha sprung for it now. Why did he?
1) The stock has a a 4.5% yield, always nice. Buffett is a value player, not a growth man, especially in the current economy. Drugs are refuges in a downturn;
2) A recently defused scandal over its lead drug, diabetes treatment Avandia, whose nasty side-effects (heart trouble) surprised doctors and researchers. The heart trouble also affects competing diabetes drugs, result of too-rigorous attempts to 'normalize' blood sugar levels. There will be lawsuits but they ignore the fact that the side-effect was unanticipated;
3) The firm has a full pipeline of drugs, mostly bought by deals with small research shops which is how GSK is spending its R&D money;
4) The company has seen aggressive cost cutting by its multinational management (something national champion drug companies cannot do). Post-merger, GSK is leaner and meaner. The firm is Anglo-American and the retiring CEO is French.
5) The firm has a strong vaccine division, a growth area now. GSK is close to getting FDA approval for an infant rotavirus shot, without the tummy side-effects of a competing vaccine from Wyeth."
