The Oracle of Omaha sold more shares in IBM last quarter, and he tossed in the towel on General Electric
Billionaire investor Warren Buffett’s Berkshire Hathaway invests over $100 billion in individual stocks, and while Buffett’s renowned for his patience, it appears he’s pretty unhappy about the performance of IBM (NYSE:IBM) and General Electric (NYSE:GE). According to Berkshire Hathaway’s quarterly 13-F report, Buffett spent last quarter reducing his ownership stake in Big Blue and unloading all his shares in GE.
IBM’s competition is stiff, and profit is struggling to grow
IBM may be a big-cap technology stalwart, but its attempts to transform itself by focusing on next-generation technology has been slow to overcome headwinds associated with declining demand for its legacy hardware products.
The company announced disappointing first-quarter financials back in April, and in July, it didn’t offer much more to cheer about when it released its second-quarter numbers. Sales slipped another 4.7% year over year, bringing the company’s streak of quarterly annual revenue declines to 21. The company reported that earnings per share increased 1% year over year, but as fellow Fool Timothy Green points out, the increase disappears if you take away the benefit of a lower tax rate.
IBM’s pinned its hopes on a return to growth on its strategic-imperatives businesses, a collection of services focusing on higher-growth opportunities like cloud computing. Revenue from these businesses has been a bright spot for the company in the past, but the pace of growth slowed in Q2 — sparking worries that IBM may be struggling to compete against top players including Amazon.com’s AWS, Microsoft, and Alphabet. IBM’s strategic-imperatives sales have grown at a strong double-digit rate, but in Q2, performance was much more mixed, with cloud and mobile posting growth of 15% and 27%, respectively, and analytics and security growing by only 4% each, including currency impacts.
The quarterly results probably didn’t inspire much confidence in Warren Buffett, who reported in his first-quarter SEC filings that he had already begun selling off some of his massive position in IBM. In the first quarter, he sold about 17 million shares, leaving him with 64.5 million shares remaining on March 31. In the second quarter, his selling continued, leaving him with about 54.1 million shares on June 30.
It’s anyone’s guess if Buffett’s going to eliminate IBM shares from his portfolio altogether, but I wouldn’t bet against it. It’s hard to sell as much stock as Buffett owns in IBM without causing a big drop in share prices, so in instances like this, Buffett has taken a measured approach that includes selling shares over the span of a few quarters. One recent example of this was his decision to sell his Wal-Mart Stores, Inc. stock. It took him about one year to fully unwind that position.
General Electric: Too many challenges
After the financial crisis, General Electric took big steps to reduce its exposure to consumer finance and boost its exposure to energy. It’s too early to say for sure if those were smart moves, but lately, the report card is mixed. With longtime CEO Jeffery Immelt exiting earlier this month, there appears to be too much uncertainty associated with owning GE stock for Warren Buffett to stick around.
