Buffett Back in Money on IBM, Reversing $2.6 Billion Loss

  • IBM rallies after forecast for 2017 tops analysts’ estimates
  • Berkshire is largest IBM holder, has long affirmed confidence

Warren Buffett

Photographer: Scott Eells/Bloomberg

International Business Machines Corp. has climbed above the price that Warren Buffett paid for shares in the computer company, reversing more than $2 billion in paper losses for his Berkshire Hathaway Inc.

IBM rose 2.2 percent to $170.55 at 4 p.m. Friday in New York after giving 2017 profit guidance on Thursday that was higher than analysts’ estimates. That compares with the average of $170.19 that Buffett spent for 81 million shares, according to Omaha, Nebraska-based Berkshire’s most recent annual report.

IBM has outperformed so-called momentum tech stocks such as Amazon.com Inc. and Facebook Inc. after Donald Trump’s election win as investors shifted to companies with consistent dividends and buybacks, said Dan Morgan, senior portfolio manager at Synovus Trust.

“Buffett is a value guy, and is helped when the pendulum swings to the value side of the sector, as opposed to a momentum player,” said Morgan, adding that his firm has more than 300,000 IBM shares. “Maybe the Street is starting to come around to what Warren Buffett saw.”

Buffett stood by his bet on IBM amid a multiyear revenue slump that pushed shares to less than $120 in early 2016. At the end of 2015, Berkshire had a $2.6 billion unrealized loss on the stake that his company said would eventually be reversed.

Still, breaking even on the stock price isn’t much to boast about; the S&P 500 Index has surged about 80 percent since Nov. 11, 2011, the last trading day before the billionaire disclosed his IBM holding.

IBM rallied 21 percent in 2016, its first annual gain since 2012, the year that Ginni Rometty became chief executive officer of the Armonk, New York-based company. Revenue declines have moderated in recent quarters, and the company has reported growth in some areas. The company also completed 15 deals just in 2016. The stock is up about 2.7 percent in 2017.

‘Growth Segments’

“Eventually, the Street does start to recognize the growth segments,” Morgan said.

Buffett has written that he was fine with IBM stock declining for a stretch because it made share buybacks more attractive. He has also benefited from dividends paid by the computer company. IBM pays $1.40 a share per quarter, a yield of more than 3 percent. And the billionaire is famous for sticking with his top picks for decades.

Berkshire’s stake in Coca-Cola Co. is valued at more than $16 billion, compared with a purchase price of about $1.3 billion. Buffett started building the holding in the 1980s. His company is the largest holder in both IBM and Atlanta-based Coca-Cola.

— With assistance by Jordyn Holman, Lisa Du, and Noah Buhayar

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