Shares of Dow component IBM (IBM 159.05) are under some selling pressure in pre-market action following the news that Warren Buffett applied some selling pressure on Berkshire Hathaway's roughly 81 million share position in the stock. Specifically, Mr. Buffett disclosed in a CNBC interview that Berkshire Hathaway sold about a third of its stake in IBM in the first and second quarters this year.
The impetus for the sale, according to Mr. Buffett, was attributed to the fact that he doesn't value IBM today the way he did six years ago, as the company's earnings projections have not lived up to expectations. Additionally, he has not been impressed with the quality of the earnings that have been reported.
Mr. Buffett recognizes that IBM has run headlong into some "pretty tough competitors" that are making it challenging for IBM to achieve stronger growth.
Notwithstanding such concerns, Berkshire Hathaway still owns more than 50 million shares of IBM, Mr. Buffett said. He added, too, that he has stopped selling now that IBM is trading below $160.
IBM closed Thursday at $159.05, yet today's revelation from Mr. Buffett has triggered a copycat trade that has taken the stock down another 3.2% in pre-market action to $153.89.
There are a number of investors who try to mirror what Mr. Buffett does with his investment positions. It is impossible to do so in a precise manner, though, because they can only really follow his trail when he makes a public disclosure of his stock moves and/or submits a 13F filing, which always comes after the fact.
Accordingly, investors selling today because Warren Buffett has trimmed his stake could simply be compounding their own setback. Remember, he said he stopped selling with the stock trading below $160.
That doesn't mean he won't sell more of IBM's stock in the future, particularly if IBM's earnings growth continues to disappoint, yet it does connote a sense that he still sees some value in the stock at some level above $160. Either that or Mr. Buffett has resolved to be patient a little while longer to see if IBM can disprove his earnings growth concerns, content to collect some nice dividend payments along the way.
IBM's annual dividend is $6.00 per share, which translates into a dividend yield of 3.77% at Thursday's closing price. For Berkshire Hathaway, that translates into roughly $300 million in annual dividend payments.
That's not a terrible consolation prize, yet judging by his stock sale, it is the total return prospect that remains concerning in Mr. Buffett's mind and probably in the mind of IBM's Watson, too.