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Warren Buffett Loves TEVA Stock and You Should Too

Bret Kenwell

While Teva Pharmaceutical Industries Ltd (ADR) ADR (NYSE:TEVA) faded from last Wednesday highs, shares ultimately climbed about 3% that day. No, it wasn’t earnings or a new drug that gave TEVA stock a bump. Instead, it was Warren Buffett.

The Oracle of Omaha, who’s famous for running Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B), increased his stake in Teva, but that’s putting it lightly. In fact, Buffett more than doubled his position in the stock, according to BRK’s recent 13F filing with the SEC.

At the end of the fourth quarter, Buffett held 18.9 million shares in Teva. After the end of the first quarter, Buffett’s Berkshire Hathaway held 40.5 million shares, good for more than $690 million. Given the current float, Buffett owns about 4% of outstanding shares, assuming he hasn’t sold any of his holdings in the second quarter.

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For a regular fund manager, that may be a concern. But with Berkshire Hathaway more than doubling its position in just three months, I’d be surprised if it lightened up just a few months later, given the long-term outlook the firm usually has.

Teva Restructuring

A few weeks ago, Teva beat on earnings per share and revenue expectations. Net income jumped more than 70%, management bumped its guidance and cash flow surged.

For a stock that’s been in complete free-fall — dropping from $32 to $10 just a few months — this was obviously welcome news.

Some may look at the results and note that sales fell more than 10% year over year (YoY) or that earnings per share continue to fall YoY. They may also note that the 1.42% dividend yield is decent, but is just a shell of its former payout as it was slashed by 75% last fall. No bull can deny these facts and there have been plenty of reason to stay away from Teva amid its turmoil.

Heck, if you want a 1.6% dividend yield, solid growth, low valuation and a fortress balance sheet, just buy Apple Inc. (NASDAQ:AAPL) instead of worrying about Teva.

But in the case of Teva Pharmaceuticals stock, investors aren’t buying it because it’s as good as Apple or Bristol-Myers Squibb Co (NYSE:BMY) or many other companies. They’re buying because management is showing that it’s turning the show around. The restructuring efforts are on pace to save the company $1.5 billion this year and almost $4 billion by 2020.

That’s fairly significant for a $20 billion market-cap company. It’s also a restructuring plan that’s working. Note that the plan was announced in December and, in the ensuing three months, one of the world’s most famous investors more than doubled up. How’s that for a vote of confidence that Teva’s plan is a good one? The fact that management has already upped its guidance also shows that things are working.

Trading Teva Stock

chart of TEVA stock

Click to Enlarge

The 50-day and 100-day moving average crossing above the 200-day moving average is definitely a bullish development. While all may not be well with TEVA stock, this move definitely shows that the intermediate trends are improving. Teva stock getting above the 200-day moving average was also a bullish development, as the moving average had been stiff resistance over the past few months.

The $22 level could give Teva Pharmaceuticals stock some resistance, but as long as $20 holds as support, I suspect Teva stock can push through $22.

A restructuring can be promising for a stock when it’s working and so far, that appears to be the case. It should give TEVA stock some momentum, as should news that Buffett’s feeling bullish. Should $20 fail as support, look for a retest of its major moving averages.

Over $22 and $26 is in the cards.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell held a position in AAPL. 

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