I'm aware of the fact that there is a DaVita thread within the Berkshire category (
http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/davita-thesis/), but I think it deserves its own "investment idea" thread and therefore suggest to move the discussion here.
Since this is a large BRK/Ted Weschler position and this is the "Corner of Berkshire
" board, I assume that you've already had a look at DVA so I spare you the business description.
To me, there are 5 reasons for DVA as an attractive long term ("Coca-Cola-like") investment:
- It's in a business where economies of scale create a sustainable competitive advantage and DVA already has this scale and puts every spare penny into further growth.
- It always looks expensive because DVA is growing like crazy and therefore has high growth capex. When you have a look at maintenance vs. growth capex, however, you'll see that it's a very high return on capital business and actually much cheaper than it looks at first glance. My mental model for this kind of company is TCI under Malone.
- DVA's (worldwide) market is so huge that there is room enough to grow and aging populations in developed countries grow this market even more.
- I think of Kent Thiry is an "Outsider CEO" and this is exactly what it takes to make a home run out of this kind of company (again: compare TCI under Malone)
- Kent Thiry has a significant stake (373,884 shares as of 13 Feb 2014), as does Ted Weschler personally (2,191,806 shares as of 24 Feb 2014).
The only real threat to the business I can see is regulatory risk. However, since government is interested in keeping health care cost down and DVA is effectively a low cost provider, I think the risk is somewhat limited and, at least, DVA would be the last of these companies to go under, if government decided to kill the industry. The other threat is a complete buyout by BRK.
I recommend this Seeking Alpha article which got me interested in DVA in the first place:
http://seekingalpha.com/article/1769952-why-davita-is-undervalued-compared-to-fresenius-medical-careps: You can make an argument that the whole dialysis business is immoral, like ItsAValueTrap does:
http://glennchan.wordpress.com/2013/06/17/for-profit-dialysis-an-unethical-industry-davita-dva/However, I think that you can make the same points with nearly every privately owned health care business. It needs to be regulated, for sure. But if you are convinced that, in sum, a privately owned health care industry is a net benefit to society, there is no convincing argument at least to my mind not to invest in companies within this sector,
as long as they abide by the laws and regulations. The net benefit to society, by the way, is why I invest in DVA but not into tobacco companies I don't think that ItsAValueTrap's comparison is fair in this regard.