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Buffett May Regret IBM Stake

November 14, 2011 | About:
Warren Buffett announced a huge stake in IBM on Monday morning. The legendary value investor scooped up $10.7 billion worth of shares or 5.6% of the company.

The buy is a major departure for the low tech, plain-vanilla franchises that Buffett usually buys.

However, IBM is at risk because it has huge exposure to both the financial sector and the public sector. Both industries are likely to be weak in the coming years.

Last quarter revenue growth slowed in all major geographic regions and IBM has significant exposure to Europe.

IBM's EPS was only boosted because it changed the assumed tax rate from 25% to 23.6%. This accounting trick added 6 cents per share of earnings in the quarter.

The backlog at IBM Global Services also continues to plummet. The backlog fell $7 billion over the last quarter. The backlog is still a hefty $137 billion but the trend is down. Even on a yearly basis, the backlog has fallen $2.3 billion.

It appears that Buffett may be buying into IBM at a time where the company faces macroeconomic headwinds that may have a severe effect on the share price over the coming quarters.

Rating: 3.7/5 (10 votes)


Rdj1234 - 5 years ago    Report SPAM
This thought provoking macro view reminds me of Monish Pabrai's observation about Buffett's buying Cort furniture, as a major portion of it's revenue and profits were coming from the dot.com industry which later crashed and burned.
Luishernadez premium member - 5 years ago
You guys DEFINITELY don´t understand how Buffett invests

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