Legendary investor Warren Buffett recently announced he had purchased more IBM stock last year for Berkshire Hathaway (NYSE:BRK-A) — and when Warren talks, people listen. Considered by many to be the greatest investor of all time, any company he purchases gets noticed by investors.
IBM (NYSE:IBM) has had its problems in recent years. Revenue and earnings have declined steadily in the past 2 years. Revenue in 2014 fell 8% from 2012; 2014 earnings are off 27% compared to 2012.
The street has punished IBM stock as a result. IBM stock finished 2013 up slightly for the year. But last October the company missed its earnings forecast and the stock has been falling ever since. The initial drop was 20% from the 52-week highs of $195/share. Today (Sep 8, 2015) the stock closed at $147.23, approaching the lowest price seen in 5 years.
One reason mentioned for IBM’s poor performance includes stiff competition in cloud services. A strong growth area for tech companies, IBM has moved too slowly to capture the cloud services market. Smaller companies like Salesforce (NYSE:CRM) and more nimble competitors like Amazon (NASDAQ:AMZN) have led the way and captured the first fruits of this new market. Startups are also diving into this hot sector to capture a portion of the profits.
In addition, IBM has seen a slowdown in its other divisions. Hardware revenue fell by 15% in the third quarter last year. Software sales have also slowed while making the transition to capture the cloud services market is cutting into profits. Also, the strong dollar is hurting IBM’s revenue in global markets.
With all these negatives about IBM, why is Warren Buffett buying IBM stock?
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