Berkshire Hathaway Chairman and CEO Warren Buffett reiterated his confidence in the future of International Business Machines and Coca-Cola in an interview with CNBC.
Buffett says IBM earns infinite returns on tangible common equity
He believes that IBM will perform well in cloud computing and corporate services.
“I feel pretty good about IBM’s future, probably more so in what they call the hybrid cloud. IBM is a trusted organization. It’s an innovative organization,” said Buffett.
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He believes the IBM just like Amazon.com and Microsoft will also prosper in cloud computing. He pointed out that cloud computing is not a winner takes all business.
Buffett is confident that IBM will generate higher earnings over the next ten years. He noted that the company “earns infinite returns on tangible common equity,” which he considers a very good business.
IBM recently reported its earnings for the first quarter the beat the expectations of Wall Street analysts. The company achieved earnings of $2.91 per share on $19.6 billion in revenue, higher than the consensus estimate of $2.81 per share on $19.67 billion in revenue. Its cloud revenue rose 75% year over year after adjusting for currencies and business divestitures.
Berkshire Hathaway increased stake in IBM
Buffett also revealed that Berkshire Hathaway acquired additional shares in IBM during the first quarter. The conglomerate will report its current stockholding in the tech giant in a regulatory filing with the Securities and Exchange Commission (SEC), which is due by the end of this month. Berkshire Hathaway owns 76,971,817 shares of IBM as of December 31, 2014.
Furthermore, Buffett said IBM’s shareholders benefited enormously from the company’s stock buyback program. He emphasized that companies, in general, should implement buyback programs based on stock, and not as an all-purpose strategy.
Last October, the board of directors of IBM approved a new $5 billion stock buyback program. The company has 985 million outstanding shares by the end of March.
Coca-Cola remains in a strong competitive position
Meanwhile, Buffett said Coca-Cola remained in a strong competitive position citing the reason that the beverage giant’s per capita consumption of its products “have gone up almost every year since 1886.”
Buffett noted that there were 1.9 billion 8oz servings of Coca-Cola products sold around the world today, and he believes that the company will sell more in the future.
The billionaire investor also emphasized that one-quarter of the calories he consumed over the past 30 years in Coca-Cola. He said, “I am one-quarter Coca-Cola.”