As recently reported by Yahoo Warren Buffett bought a stake-$357 million’s worth-in the Israeli drug manufacturer Teva Pharmaceuticals despite a slew of bad news for the drugmaker that had caused them to reduce both their workforce and stock dividends.
By making such a sizable investment in Teva Buffett’s action is a classic case of going against the grain. Almost everyone is avoiding the stock and perhaps for good reason.
Teva the largest generic drug manufacturer in the world with an aggressive acquisition history had a day of reckoning in 2016 when worldwide generic drug prices dropped and caused its revenue to plummet. That was also around the time it completed its acquisition of the generic unit of Allergan increasing Teva’s overall debt.
In ignoring the naysayers Buffett demonstrated his ability to do his own thinking and make a decision based on his tried and true strategies. He seems to have faith that the existing management at Teva can restructure the company and trim its debt. As far as generic drug prices are concerned Buffett may feel that the demographics of aging populations are on his side and that the worlds’ demand for drugs will eventually cause generic prices to rise again.
Time and again Warren Buffett has invested in well-run businesses that have reasonable valuations and the ability for appreciable growth. He has an outstanding track record to assess the potential of the long-term value of companies. Will the Oracle of Omaha win big with his investment in Teva? Only time will tell.