by Jeff Reeves | November 14, 2011 10:17 am
Warren Buffett grabbed headlines last week on news that his Berkshire Hathaway (NYSE:BRK.A, BRK.B) went on a $24 billion shopping spree last quarter. Details at the time were sparse on specific companies, but Buffett disclosed Monday that one of his big targets has been IBM (NYSE:IBM).
The recent Buffett stock buys that have gotten the most attention are huge and public buy-ins to Bank of America (NYSE:BAC) and acquisition target Lubrizol. Bufett’s $5 billion investment in preferred shares of BofA made a splash in August amid the volatility of the broader market, and the $8.7 billion Lubrizol deal became notorious thanks to impropriety by Buffett protégé David Sokol.
But IBM is just as big of a development for Buffett and Berkshire Hathaway as these two other deals. In fact, it’s even larger — with reports Monday disclosing that Warren Buffett and Berkshire have now amassed $10.7 billion worth of IBM shares.
Buffett told CNBC that his firm has been buying IBM since March and now holds about 64 million shares, or about 5.5% of the company. He said he does not intend to buy more, but his current stake speaks volumes about what he thinks of IBM.
IBM is not your typical Buffett buy. The Oracle of Omaha has a preference for banks and consumer stocks. Coca-Cola (NYSE:KO) remains Buffett’s top holding, at about one quarter of Berkshire’s portfolio, while the second-largest stake is in Wells Fargo (NYSE:WFC) at around 2% of Berkshire Hathaway’s holdings.
But recently, the SEC filings of Berkshire have indicated moves into “commercial, industrial and other” companies, according to a regulatory papers. IBM is exemplary of this trend.
Of course, Buffett isn’t the only one who has been finding IBM attractive. Shares are up 29% year-to-date despite a choppy market, and have doubled since Jan. 1, 2009. The stock is currently butting up against an all-time high.
IBM stock has performed well in part because of its ability to adapt to the ever-changing tech landscape — despite being 100 years old! The technology company maintains an innovative culture, great management and strategic focus. For example, back in 2005, IBM sold off its PC division to Lenovo, which allowed the company more flexibility to focus on better growth areas. It has a disciplined acquisition approach — much different than other entrenched stocks like Hewlett-Packard (NYSE:HPQ), which spends money like it’s going out of style, running down boneheaded buyouts like the 2009 Palm deal.
It’s not just this philosophical approach that turns investors on to IBM stock, either. Earnings per share have risen steadily since 2007 despite a severe economic downturn. From EPS of $7.18 in fiscal 2007 to projected fiscal 2011 earnings of $13.40, IBM has managed to almost double its earnings in just four years despite a horrible environment.
No wonder Buffett is big on IBM stock right now and has thrown Berkshire into this tech giant. Investors might be wise to follow suit, even though IBM already is around historic highs.
Jeff Reeves is the editor of InvestorPlace.com. Write him at firstname.lastname@example.org, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.
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