Feb. 17 (Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc. reduced holdings of Johnson & Johnson, the world’s largest maker of health-care products, and Procter & Gamble Co., the biggest consumer products company, as he turned his attention to fixed-income investments.
Buffett’s firm cut its holdings of New Brunswick, New Jersey-based Johnson & Johnson by 54 percent to 28.6 million shares in the three months ended Dec. 31, Berkshire said today in a regulatory filing disclosing U.S. equity investments. The stake in Cincinnati-based Procter & Gamble fell by 9 percent.
Buffett, said to be America’s richest man by Forbes magazine, is betting on U.S. companies by funding buyouts, purchasing corporate debt and acquiring preferred shares in private deals. Omaha, Nebraska-based Berkshire, where Buffett is chairman and chief executive officer, agreed in the past six months to purchase $8 billion in preferred shares of General Electric Co. and Goldman Sachs Group Inc. paying 10 percent.
“When you’re getting fixed-income returns of 10 and 15 percent, why be in equities?” said Gerald Martin, a finance professor at American University’s Kogod School of Business in Washington who has studied Buffett’s investment history. “It could very well be he’s rebalancing the portfolio.”
Berkshire cut its stake in U.S. Bancorp, the largest bank based in Minnesota, by 7.4 percent to about 67.6 million shares. The lender’s fourth-quarter profit plunged 65 percent on investment impairments and reserving against bad debt. The bank, which bought the deposits of failed lenders Downey Financial Corp. and PFF Bancorp Inc., agreed to sell the U.S. Treasury’s Troubled Asset Relief Program $6.6 billion in preferred shares.
Wells Fargo
Berkshire’s holding in Wells Fargo & Co., the second- biggest U.S. home lender, dropped by less than 1 percent. The San Francisco-based lender in January posted its first loss since 2001 after acquiring Wachovia Corp. Berkshire remains the largest investor in Wells Fargo.
Buffett’s firm also disclosed a stake in Nalco Holding Co., the Naperville, Illinois-based water treatment company that may benefit from a surge in demand for clean water in emerging markets. The company makes chemicals that prevent corrosion, contamination and the buildup of harmful deposits in water. Berkshire owned 8.74 million shares as of Dec. 31, or about 6.4 percent of the stock, according to Bloomberg data.
“We welcome Berkshire Hathaway as a shareholder and appreciate their interest and confidence,” said Nalco spokesman Charlie Pajor.
Oracle of Omaha
Known as the “Oracle of Omaha,” Buffett, 78, has become a cult figure among investors, drawing 31,000 people to that city’s Qwest Center arena for his annual shareholders meeting last year. He makes most of the investment decisions at Berkshire, while Lou Simpson, 72, manages the portfolio for car insurance unit Geico Corp. Buffett has cautioned investors against assuming all moves in the equity portfolio are his.
Mutual funds and individual investors mimic the firm’s stock picks in an effort to duplicate Buffett’s investing success, and an academic study by Martin in 2007 found that using this strategy for 31 years would have delivered annualized returns of about 25 percent, double the return of the S&P 500.
Investors can’t be certain they have full information on Berkshire’s stock holdings because Buffett often receives U.S. Securities and Exchange Commission permission to delay disclosure to avoid copycat investing. Today’s filing only lists equities traded on U.S. exchanges. Buffett discloses other holdings in filings with non-U.S. regulators.
Bikes and Bubbles
Buffett separately made deals in the past four months to buy debt of wallboard manufacturer USG Corp., motorcycle-maker Harley-Davidson Inc., luxury jeweler Tiffany & Co. and Sealed Air Corp., the maker of Bubble Wrap shipping products. The yields on the securities range from 10 percent to 15 percent. Berkshire had more than $30 billion in cash as of Sept. 30.
“Buffett has shown a preference over the past couple years toward buying whole companies, the debt markets or other private deals,” said Mohnish Pabrai, founder of Irvine, California- based Pabrai Investment Funds, in an interview before the filing was released.
Procter & Gamble has suffered amid the recession as consumers bought fewer premium versions of staple items such as Tide laundry detergent and Olay skin cream.
The company, which gets about half of its revenue outside the U.S., also has been hurt by the strengthening of the U.S. dollar against other currencies. The shares hit a 52-week low today.
Copycat Drugs
Johnson & Johnson’s fourth-quarter profit rose 14 percent on job cuts and increased sales of Listerine and Tylenol. The firm forecast that its 2009 results would be hurt by the slumping economy, competition from copycat drugs and a strong dollar.
Jennifer Chelune, a Procter and Gamble spokeswoman, and Carol Goodrich, a spokeswoman for Johnson & Johnson, declined to comment.
Berkshire cut its stake in Houston-based ConocoPhillips, the third-biggest U.S. oil producer, by 4.8 percent to 79.9 million shares. Berkshire remains the largest shareholder in the company. Buffett’s firm also cut its stake in Richmond, Virginia-based CarMax Inc., the biggest U.S. used-car dealer, by 4.4 percent to 17.6 million shares.
Berkshire raised its stake in Ingersoll-Rand, the Bermuda- based maker of Thermo King and Hussmann refrigeration equipment, 38 percent to 7.78 million shares.
The company also increased its holdings of Cleveland-based Eaton Corp., which manufactures products for the vehicle and aerospace markets, by 10 percent to 3.2 million shares. Buffett first disclosed a stake in the firm in his filing of holdings for the third quarter of 2008.
The stake in Princeton, New Jersey-based NRG increased by 44 percent to 7.2 million shares. The power producer is the object of a hostile takeover bid by Chicago-based Exelon Corp.
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