A Tech Stock Berkshire Hathaway Could Own Forever

Warren Buffett has been taking lots of heat over some of his top stock holdings.IBM-tech-stock
His holding company – Berkshire Hathaway (NYSE: BRK-B) – owns a large stake in International Business Machines (NYSE: IBM). With IBM shares down 11% over the last year, some Buffett disciples are concerned.
Buffett has famously said, “Technology is just something we don’t understand, so we don’t invest in it.”
So why is IBM one of Berkshire’s top three holdings? And why did Buffett invest another $400 million in the tech stock during the first three months of the year?
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Note that Buffett doesn’t have much turnover or activity in his portfolio on a quarterly basis, but he added to his IBM stake by just over 3% during the first quarter.
Buffett is known for making big bets on large companies that have wide moats. This means investing in companies with sustainable competitive advantages – regardless of whether that stock is a major beverage company like Coca-Cola (NYSE: KO) or a major tech company.
In truth, many of Buffett’s stocks are indicative of “forever stocks.” These are stocks that you can own forever – the ultimate “set it and forget it” strategy. It’s a strategy that allows you to handily beat the market over the long term with little to no work – once you do your due diligence.
It starts with narrowing a list of more than 5,000 stocks down to a select few, by using a select group of criteria to find the holy grail. One obvious feature is wide and defensive moats. As far as IBM goes, you don’t become a $170 billion market cap company on a whim. This 104-year-old corporation has built up a strong moat over the years. Click here to discover 10 top stocks for any market.
IBM is a leader in the computer services and software businesses. It has the ability to combine these two offerings to cater to the world’s top companies. It’s really carved out a niche in the telecom and financial services sectors, but it’s also getting more involved in fast-growing areas like the Internet of Things.
IBM operates across the globe in over 150 countries and is the global revenue leader in information technology services. And when it comes to protecting its competitive advantages, IBM has a lot of patents. It’s received the most patents in the U.S. each year for the last 22 years.
Another feature of a forever stock? Dividends. Income-producing stocks can’t be overlooked. The return of the S&P 500 index over the last decade has been 74%. When you include dividends, the S&P 500’s return is 115%. Quite a difference.
And dividend-wise, IBM is a machine. It has upped its dividend for 15 years in a row. Its 3.1% yield is over 33% higher than the average S&P 500 dividend yield. In 2014, IBM upped its dividend by 16%, and this year it upped its dividend by 18% to $1.30 a share.
Last but not least, another important component of a forever stock is buybacks, which is one of the most effective ways for a company to boosts the value of its shares. IBM is an undisputed leader when it comes to buybacks. Over the last 10 years, the tech giant has reduced its shares outstanding by close to 40%.
When you look at some of the other major IT and software players, none are as cheap as IBM. This includes Accenture (NYSE: ACN), Infosys (NYSE: INFY) and Wipro Ltd. (NYSE: WIT). Shares of IBM trade at a forward price-earnings multiple of 10. Meanwhile, its top competitors trade at a P/E of nearly 20.
The bottom line is that IBM is a great stock for the long term. It shares many of the key traits that could make this a stock to buy today and hold forever.
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