IBM investment since 2011
Since the year of 2011, Warren Buffett has started investing in IBM, a long-lasted technology giant that provides IT consultancy services and sells sophisticated mainframe computers products to other corporations (note: Many clients are large sized companies). By the end of 2011, Berkshire held 63.91M shares of IBM, or 5.5% of IBM’s outstanding shares. On December 31, 2012, the number of IBM shares held by Berkshire increased to 68.12M, or 6.0% of total outstanding shares.
At US$208, IBM trades at FY12 P/E of 13.6x (EPS: US$15.30; trailing 4Q earnings), or a very affordable valuation given solid competitive advantage and steady earnings prospects. Share price of IBM was around US$146 on December 31, 2010 and the stock advanced to around US$184 by the end of 2011. The average cost price paid by Warren Buffet was ~US$171.5 given cost value of US$11,680M and share number of 68.12M.
Indeed, IBM should be a moat-type business that has very solid defensive ability against technology change and new competition. Compared to the consumer electronic and PC makers, the sophiscated products provided by IBM should enjoy solid “Economic moat” against competition. For example, people can go away from Nokia and Blackberry consumer products and shift to iPhone and Samsung, and such changes can happen in just a few years. For IBM, the sophiscated mainframe computer products enjoy quasi-monopoly status and the major corporations have to rely on the products and IT consultancy (maintenance) services from years to years.