Buffett keeps buying
After a long spell of inactivity, Warren Buffett has made three large investments in two months. Matthew Partridge reports
Shares in HP reached record highs last week, rallying by as much as 17%, after news that Warren Buffett’s Berkshire Hathaway had bought an 11.4% stake for around $4.2bn, says Callum Jones in The Times. Berkshire is now the largest shareholder in the computing and printing group. The purchase is Berkshire’s “third significant transaction since the end of February”, coming after it bought Alleghany, an insurer, for $11.6bn in cash, as well as building a 14.6% stake in Occidental Petroleum, now worth roughly $8bn.
The flurry of activity may seem like a very sudden change of view: until recently Buffett had been complaining about a “shortage of appealing investment opportunities”, says Katherine Chiglinsky on Bloomberg. Berkshire has been forced to “increasingly turn to share buybacks”, as a means of deploying the money generated by its operations. However, recent stockmarket turbulence has meant that stock valuations have become more attractive.
A dull tech foray with promising prospects
Buffett’s move into technology with HP follows his stake in Apple, which he began buying in 2016 for total of $36bn. That was valued at more than $161bn at the end of 2021. Still, if Buffett is hoping to repeat that success, he should think again, says Dan Gallagher in The Wall Street Journal. HP lacks Apple’s “consumer cachet” and the “growing line of high-margin, recurring services revenue attached to [Apple’s] devices”. While the home PC market, which accounts for most of HP’s revenue, “got a strong boost from the pandemic, with workers rushing to set up their home offices”, analysts expect PC sales “to revert to low-single-digit growth going forward”. And its print-supply business faces “existential challenges” with the “rise of electronic document usage in remote work and school settings”.
Quite, says Robert Cyran on Breakingviews. Not all Buffett’s forays into tech have ended up working out and HP could be another flop. Critics are already warning that he “looks more likely to repeat his experience with IBM than with Apple”: an investment in the former ended up as a “squandered opportunity” after IBM’s shares stagnated during a period when the S&P 500 more than doubled. One of the problems was that revenue ended up shrinking at “fading” IBM – something that could easily happen at HP given that PC and printer sales are “mature” at best.
That said, even if HP is no Apple, then it is the sort of “dull” industrial company trading at “staid prices” that he has made “tens of billions of dollars from” in the past, says Lex in the Financial Times. HP’s emphasis on “cost efficiency, tight working capital management and careful capital allocation” not only compensates for its lack of “new-fangled products”, but also offers plenty of reasons to “get investors excited”. What’s more, the company is cheap: even after Buffett’s investment it “still only trades at about ten times forward earnings” even though earnings are expected to grow more than 10% in 2022.