Despite IBM’s wild ride on the stock market, Warren Buffett remains optimistic
IBM’s stock has taken a wild ride over the past few weeks ever since the legacy giant reported its thirteenth straight decline in quarterly revenue, but that doesn’t seem to bother legendary CEO and investor Warren Buffett of Berkshire Hathaway.
In late July after IBM reported its weak earnings, the company’s stock dropped nearly 6% to $163.07, down from the $173.27 the day before. According to CNBC, Buffet lost roughly $700 million from the stock drop with Berkshire Hathaway owning about 79.57 million shares of IBM.
As of this Monday, the company’s stock is currently trading at $157.31.
While some investors may seem a bit worried about IBM’s declining stock price as the company tries to invest heavily into cloud computing and data analytic technology to eventually boost profits and make up for declining personal computer sales, Buffett is taking a more optimistic look.
“I love it when [a company’s stock] goes down,” Buffett said, hinting that he might be buying more IBM stock in the next few days. “It means if I want to buy more stock, and you can look at our 13F in a few days, it means I get to buy it cheaper.”
Buffett explained that he’s “not a seller of stock” and that he isn’t looking to make a quick buck off a fast-rising stock price once he makes a purchase. Instead, he’s looking at the longer term, like five to ten years down the road, for the price to go up.
That’s the type of optimism that IBM seems to be banking on as it undergoes a reinvention that sees heavy investing in areas like cloud computing, big data, and security. IBM CFO Martin Schroeter told investors in July that the company hopes that those areas of investment will account for 40% of company sales by 2018 and bring in $40 billion in revenue.
While the projections are hopeful, analysts have expressed concern that IBM’s investments are not paying off fast enough for them to be satisfied and the company keeps reporting quarterly revenue declines.
Buffett is known to buck conventional wisdom as Berkshire’s latest $37.2 billion acquisition of Precision Castparts, announced on Monday, demonstrates. Industrial goods manufactuer Precision Castparts saw its stock tank this year because of low oil prices, Fortune’s Geoff Colvin reported. But where investors saw trouble, “Buffett saw a strong long-term business at a bargain price,” Colvin wrote.
Time will tell if Buffet’s investment in IBM will pay off. He’s at least willing to wait.
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