Despite many investors’ expectations, Warren Buffett (Trades, Portfolio) did not buy more shares of his fourth-largest stock, IBM (IBM, Financial) in the fourth quarter as its price fell more than 5%.
Previously, a price slump had prompted him to invest more in the company. In the third quarter he told CNBC, “We’re buying because we like what we’re buying in relation to its long-term prospects. If we liked it at x a few weeks ago and it's 95% of x now, I like it even better and if it goes to 90% of x, I'll like it still better.”
Buffett initiated his IBM position in the second quarter 2011, amassing 24.9 million shares as they traded at a quarterly average price of $167 each. Since then, Buffett has increased his ownership in most quarters, at average quarterly prices ranging from $154 to $203 per share. In the fourth quarter, the stock fell to its lowest average price since he started the position, at $141 per share.
Eddie Lampert, a hedge fund manager once compared to Buffett for his investment results and long-term holding periods of quality companies, began a position in IBM in the fourth quarter 2014 when its shares traded for $166 on average, which he sold the next quarter as the price dived to $159. He then started a position twice as large in the third quarter 2015, at a lower price of $154 per share.
When IBM’s average price dropped to $140 in the fourth quarter, he added 195,915 shares, a 44.5% increase. At quarter-end, his investment company RBS Partners held 636,170 shares in total, a 6% weight in his long portfolio, making it his sixth largest of nine holdings.
IBM was the only application software stock in Lampert’s portfolio, which consisted primarily of retail stocks such as Gap (GPS, Financial) and Lands' End (LE, Financial). Lampert also acts as chairman of retailer Sears Holdings Corp. (SHLD, Financial), which formed his largest position at 31.5% of his portfolio. He has struggled to turn around the company, whose share price has lost more than half over the past year.
IBM is also engaged in a transformation strategy toward becoming a cognitive solutions and cloud platform company that has weighed on financial results. In the fourth quarter, the company reported a 2% year-over-year decrease in revenue from continuing operations to $22.1 billion. Net income also declined 19% to $4.7 billion. IBM has focused on growing its cloud, analytics, mobile, social and security businesses, which grew 26% to $29 billion in 2015, representing 35% of revenue, up 17% from a year earlier.
Last year, the company also returned $9.5 billion to shareholders, with $4.9 billion in dividends and $4.6 billion in share repurchases.
IBM has a P/E ratio of 8.5, near a ten-year low. Its P/B ratio of 8.23 and P/S ratio of 1.43, are both near their respective five-year lows.
See Eddie Lampert’s portfolio here. Not a Premium Member of GuruFocus? Try it free for 7 days.
Also check out: