The Oracle's Tepid View on Health Care

Warren Buffett may be bullish on railroads, but he's cautious on health care.

He doesn't own major drug companies like Pfizer Inc. but he does have a big stake in Johnson & Johnson, a diversified health company with hundreds of recognizable brand-name consumer products like Tylenol, Listerine, and Neutrogena.

In fact, Johnson & Johnson, which announced a big restructuring today, is one of the Oracle's biggest holdings. In the second quarter (the last reported filing), Buffett's Berkshire Hathaway Inc. added 4 million J&J shares, bringing its total to almost 37 million. (Berkshire added to its stake after significantly reducing its position last year.)

"He believes in the health care universe," says Morningstar Inc. analyst Bill Bergman. "He sees it like Coca-Cola. Health care needs aren't going to go away."

But Bergman also notes that Buffett has to have extreme confidence in a company's management team before buying in. Buffett is complimentary of J&J CEO William C. Weldon, he says.

Berkshire also added medical products maker Becton, Dickinson & Co. to its portfolio in the second quarter, snapping up 1.2 million shares. It owns 1.5 million shares of British drugmaker GlaxoSmithKline Plc, unchanged from the previous quarter.

J&J's strength in consumer products is the key to Buffett's interest, says George Silva, who runs the website FatPitchFinancials.com.

Silva, a blogger and Buffett watcher says his investing mentor is "not 100 percent comfortable with the topic" of health care. Silva takes his cues from recent interviews Buffett gave in which he talked about J&J's strong consumer brands.

"He views J&J as consumer products company," Silva says.