Does Warren Buffett See Something In IBM That Others Don't? Bernstein Analyst Illuminates

February 25, 2015

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Does Warren Buffett See Something In IBM That Others Don't? Bernstein Analyst Illuminates

The last year has been great for tech companies when it comes to stock performance. With the NASDAQ returning over 16 percent, several tech companies have seen shares skyrocket. However, International Business Machines Corp. (NYSE: IBM) is an exception.

The stock is down more than 10 percent year-to-date and has been trading in a range close to the $160 level in the past four months. The only recent good news concerning the company has been Berkshire Hathaway Inc. (NYSE: BRK-B)(NYSE: BRK-A) CEO and Chairman Warren Buffett increasing his stake in the company.

Toni Sacconaghi, Sanford C. Bernstein & Co. senior analyst, was on CNBC Thursday to discuss whether the company can make a turnaround and gave his insights on Buffett increasing his stake.

IBM Turnaround

“It’s a long road back,” Sacconaghi said. “Many technology companies today, old-line technology companies, are facing this transition between old technologies and new technologies. The world is moving to cloud; the world is moving to big data, and that presents a challenge for all the on-paper [sic.] companies.”

IBM's CEO

When asked if IBM's CEO was a good fit for the company, Sacconaghi said, “I believe that Ginni [Ginni Rometty] is a good leader, and I think she has positioned the company well.

“But we are talking about an elephant here; we are talking about a company that has over 400,000 people that has traditional businesses in main-frame and high-end computing,” Sacconaghi replied.

What Buffett Sees In IBM That Rest Of Market Doesn’t

“I think if you are Warren Buffett, you say, ‘I like companies that produce a lot of cash, that have high returns on equity and I like companies that ultimately deploy that cash sensibly, buy back stock, don’t do crazy acquisitions and have a lot of recurring revenues and profits.’ IBM fits all those criteria.”

He continued, “So, if you are Buffett and you say, ‘I don’t like technology. I don’t understand it. Let me find a company that has characteristics of insurance, characteristics of the kind of companies that I like.’

“IBM in tech is about as close as you can get.”