Berkshire Reduces J&J Stake, Turns to Fixed-Income

Warren Buffett’s Berkshire Hathaway Inc. cut holdings of Johnson & Johnson, the world’s largest maker of health-care products, and Procter & Gamble Co. as he turned his attention to fixed-income investments.

Buffett’s firm reduced its stake in New Brunswick, New Jersey-based Johnson & Johnson by 54 percent to 28.6 million shares in the three months ended Dec. 31, Berkshire said yesterday in a regulatory filing disclosing U.S. equity investments. The holding in Cincinnati-based Procter & Gamble, the biggest consumer-products company, fell by 9 percent.

Buffett is negotiating private deals to buy corporate debt and preferred shares as equity markets drop. Omaha, Nebraska- based Berkshire maintained its positions in Bank of America Corp. and American Express Co., financial firms that lost more than 45 percent their market value in the fourth quarter, while selling Johnson & Johnson and Procter & Gamble, which each fell less than 14 percent.

“Those are two companies that held up well in the fourth quarter, and it seems like he’s seeing value elsewhere,” said Mitchell Kovitz, the founder of Kovitz Investment Group, which manages more than $1 billion, including Berkshire shares. “He’s able to make deals that aren’t available to most people.”

Berkshire, where Buffett is chairman, agreed in the past six months to purchase $8 billion in preferred shares of General Electric Co. and Goldman Sachs Group Inc. Buffett also made deals 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 are as high as 15 percent.

‘Loan Operation’

“He’s got a pretty good loan operation going at 10 to 15 percent with very little risk,” said Michael Yoshikami, president of YCMNet Advisors in Walnut Creek, California, who manages $800 million and owns Berkshire shares. He may have picked Procter & Gamble and Johnson & Johnson to sell because “their stock prices are closer to what he thinks they’re actually worth.”

Johnson & Johnson dropped 15 cents, or 0.3 percent, to $55.83 at 4:14 p.m. in New York Stock Exchange composite trading. Procter & Gamble rose 84 cents, or 1.7 percent, to $50.95.

Buffett’s firm also disclosed a stake in Nalco Holding Co., the water treatment company that may benefit from a surge in manufacturing in emerging markets. Nalco makes chemicals that prevent corrosion and the buildup of harmful deposits and serves the paper, steel and power industries. Berkshire owned 8.74 million shares as of Dec. 31, or about 6.4 percent of the stock, according to Bloomberg data.

‘Energy in our Step’

“We’re doing some exciting things to go after growth opportunities, and it’s a great feeling for me and my team to have one of the savviest investors in the world give us a vote of confidence,” said Nalco Chief Executive Officer J. Erik Fyrwald in a telephone interview today. “There’s a little more energy in our step today.”

The shares gained 60 cents, or 5.4 percent, to $11.66. Berkshire’s stake has a value of about $101.9 million, based on today’s closing share price.

Nalco Shares

The value of Berkshire’s U.S. stock holdings dropped 26 percent over three months to $51.9 billion as of Dec. 31. Berkshire had more than $30 billion in cash as of Sept. 30.

Known as the “Oracle of Omaha,” Buffett, 78, is a cult figure among investors, drawing 31,000 people to that city’s Qwest Center arena for his annual shareholders meeting last year. Buffett has cautioned investors against assuming all moves in the equity portfolio are his.

Investors mimic the firm’s stock picks in an effort to duplicate Buffett’s success, and an academic study in 2007 found that using this strategy for 31 years would have delivered annualized returns of about 25 percent, double the return of the Standard & Poor’s 500 Index. Yesterday’s filing only lists equities traded on U.S. exchanges. Buffett didn’t respond to a request for comment made through his assistant, Carrie Kizer.

Buffett’s firm 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. Berkshire reduced holdings of Richmond, Virginia-based CarMax Inc., the biggest U.S. used-car dealer, by 4.4 percent to 17.6 million shares.

ConocoPhillips, CarMax

ConocoPhillips fell 67 cents, or 1.6 percent, to $42.27. CarMax gained 24 cents, or 2.7 percent, to $9.05.

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 reserves against bad debt.

Berkshire added shares of Ingersoll-Rand Co., the Bermuda- based maker of Thermo King and Hussmann refrigeration equipment, increasing the investment 38 percent to 7.78 million shares. The company also increased holdings of Cleveland-based Eaton Corp., which manufactures products for the vehicle and aerospace markets, by 10 percent to 3.2 million shares.

The stake in Princeton, New Jersey-based NRG Energy Inc. 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.

NRG, Eaton

NRG advanced 20 cents. Or 1 percent, to $19.68. Eaton added 11 cents to $41.93. Ingersoll Rand rose 29 cents, or 1.8 percent, to $16.59. U.S. Bancorp climbed 29 cents, or 2.7 percent, to $11.02.

Procter & Gamble has suffered amid the recession as consumers buy 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.

Johnson & Johnson forecast that 2009 results would be hurt by the slumping economy, competition from copycat drugs and a strong dollar.