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Former non-techie Warren Buffett buys big into IBM
By Catholic Online (NEWS CONSORTIUM)
November 14th, 2011
Catholic Online (www.catholic.org)
November 14th, 2011
Catholic Online (www.catholic.org)
Warren Buffett, CEO of Berkshire Hathaway was notoriously reticent about buying stock in the high-tech end of things. Now, Buffet's Berkshire Hathaway has spent a cool $10.7 billion this year to buy up 64 million IBM shares. This translates to holding a whopping 5.5 percent in the company.
Buffett has quietly been buying IBM since March, as 64 million shares don't accumulate overnight. On the figures he's announced, $10.7 billion for 64 million IBM shares, Berkshire's average cost-per-share works out to about $167.
IBM's stock closed last week at $187.38 a share, which means that Berkshire currently has a gain in its position of more than 10 percent. IBM has had a strong showing in the market this year, rising more than 25 percent versus a two percent rise for the Dow Jones Industrials.
At IBM's current price, Berkshire's 64 million shares have a market value of a little more than $12 billion. If Buffett were to rank his company's holdings today, IBM would rank behind only Coca-Cola. Berkshire's 200 million shares of Coke have a current market value of about $13.6 billion.
Buffett complimented Lou Gerstner on CNBC for picking IBM up off the ground, setting it on a growth path, and choosing an ideal successor, Sam Palmisano, who became CEO in 2002. As Fortune noted in an article about Palmisano and IBM early this year, he has since 2002 powered earnings to $11.52 per share in 2010, broadened IBM's geographical reach, and expanded the company's supercomputing and analytics businesses.
Buffett also gave his stamp of approval that Palmisano has done it all with a stated, publicized plan and met every objective. Buffett said that Palmisano has "delivered big-time."
One of Palmisano's goals was to return money to shareholders, both by raising IBM's dividend and repurchasing large quantities of IBM's stock. In Palmisano's tenure, IBM has bought more than 30 percent of its shares.
A strong believer in companies buying their own stock when it's undervalued, clearly both Buffet and Palmisano have considered IBM to be. Commenting to Fortune in the 1980s about stock buybacks made at intelligent prices, Buffett said they were close to "a polygraph" for determining whether a management was acting in the shareholders' interest.
Both Buffett and Palmisano have been in competition for IBM's stock this year. While Berkshire was paying its $10.7 billion for 64 million shares, IBM itself spent nearly $11.5 billion in 2011's first nine months to buy almost 69 million shares.
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