Why IBM has a place in Warren Buffett’s portfolio
Warren Buffett’s interest in IBM
Warren Buffett, one of the world’s most successful investors, needs no introduction. If he invests in a stock, it’s accepted by one and all that you don’t need to enquire further about the company’s business and financials. Buffett is known for his filters, which he applies while choosing a stock. The stocks that usually make up to his portfolio are businesses you can easily understand. They have a competitive advantage (moat), have an efficient and honest management team, and are fairly priced.
Buffett has been known to openly show his reluctance to invest in technology stocks. This is why it came as a surprise to many when, in 2011, he made his first investment in IBM Corp. (IBM).
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The above chart shows the variations in IBM’s share price in the last year. IBM’s stock price fell due to lower-than-expected earnings and a decline in revenues. Lagging demand for IBM’s hardware, along with weaker sales in developing countries, made IBM’s stock tumble.
IBM’s weak results
IBM has been subjected to huge criticism. It has repeatedly reported weak financial results and lower-than-expected forecasts in the past few years. It faces faltering hardware sales, sluggish IT spending, and challenges in emerging markets—especially China. The share price fell when the company reported its lowest quarterly revenue (Q1 2014) in the last five years.
Despite all the uncertainties hovering around the stock, Warren Buffet—who holds approximately $13 million worth of IBM shares to date—increased his stake in the company by 0.3% in Q1 2014.
Investing in IBM
The NASDAQ Technology Dividend Index Fund (TDIV), Dow Jones Industrial Average ETF (DIA), iShares U.S. Technology ETF (IYW), Information Tech ETF (VGT), and Technology Select Sector SPDR (XLK) are some of the ETFs with significant exposure to IBM. Among their portfolios, IBM weighs 5% to 7.5%.