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Warren Buffett recently trimmed his holdings of IBM (IBM) by around 30%; on the surface, this sounds like the Oracle of Omaha is bearish on the stock, but when you dig deeper, the opposite is true, notes Ben Reynolds, editor of Sure Dividend.
In an interview with CNBC on May 5, 2017, Buffett further explained why he trimmed his IBM position. Buffett said that he revalued the company, and that it was a sell above $180.
The interviewer brought up that IBM (at the time) was trading around $160 and asked if Buffett would still sell at that price. Buffett said the following: “I don’t think we will be selling. In fact, we could buy.” That was back in May.
IBM is currently trading for around $154 per share, and still makes up around 5% of Berkshire’s portfolio. And, the company has posted positive results recently. Adjusted earnings-per-share grew 1% in its most recent quarter versus the same quarter a year ago.
More importantly, the company’s revenue from its strategic imperatives business lines grew 10%. This growth includes robust 20% revenue growth in IBM’s cloud segment.
The market responded favorably to IBM’s latest earnings announcement, pushing the stock price up around 9% on the day.
There’s much to like about IBM going forward. First, the company is a high quality blue chip dividend stock thanks to its 3.8% dividend yield and 106-year operating history (the company was founded in 1911).
IBM has proven time and again that it can keep pace with rapid technology sector changes. The stock is currently trading for just 11.2 times expected 2017 adjusted earnings. The company appears significantly undervalued relative to its strength and growth potential at current prices.
Ben Reynolds is owner and editor of Sure Dividends.
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