Edward Lampert (Trades, Portfolio), a Warren Buffett (Trades, Portfolio) admirer, bought a stake in IBM (IBM, Financial), Buffett’s fourth largest position, as its share price declined in the third quarter.
As founder and CEO of hedge fund ESL Investments, Lampert typically buys large positions in a few select companies and holds for long periods. His purchase of IBM consisted of 440,255 shares, translating to 4.07% of his portfolio.
IBM shares traded at an average price of $155 in the third quarter. When Buffett started buying IBM for his company Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) back in the second quarter of 2011 it traded an average of $167, and he paid approximately $172 on average for all of his more than 81 million shares. Buffett also added almost 1.5 million shares to his stake at the low price in the third quarter – his lowest average price ever – which he announced he was doing before the quarter ended. Year to date, IBM shares slid almost 17% to close at $133.82, near their lowest price in a year.
IBM shares continued their decline in October as the company reported 1% lower revenue year over year adjusted for currency and a divested business. Consolidated net income was $8.7 billion, ticked down from $6.5 billion, and consolidated diluted earnings per share were $8.85, a 37% increase from $6.44. Meanwhile, IBM held its gross profit margin at 48.9% from 48.6%.
The results come as IBM seeks to transition its business to more cloud-based services, where positive results have been seen. Its revenue in cloud, analytics, mobile and security jumped 30% in the first nine months of the year, with cloud revenue up 65%. Meanwhile, revenues declined across all segments.
The time frame of the plan to reinvent the business may have appealed to Buffett and Lampert, both buy-and-hold investors.
“As I said earlier, this is a longer-term play,” Martin Schroeter, IBM’s senior vice president and chief financial officer said in a third-quarter earnings webcast. “We’re creating new platforms, and building ecosystems, and much of this is an as-a-Services model. We’re continuing to invest at a high level, as we shift our spending to our strategic imperatives.”
IBM stands out as one of Lampert’s few non-retail stocks. The investor also serves as chairman of struggling retailer Sears Holdings (SHLD, Financial), holding top positions in it and its various spin-offs as he tries to turn its business around. In the past, he has led successful campaigns at companies such as AutoZone (AZO, Financial) and the merger of Sears and Kmart.
His only other major move during the quarter was in retail: Lampert increased his position in Gap Inc. (GPS, Financial) by almost 91% to almost 4 million shares. At 7.1% of his portfolio it ranked as his fifth largest position after the increase in his portfolio of only nine holdings. Lampert started the position last quarter and has entered and exited the company in the past, once owning more than 36 million shares in 2011.
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