Why Warren Buffett Still Loves IBM

Even the great ones don't get it right every time, and Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) Chairman and CEO Warren Buffett is certainly no exception. While Berkshire Hathaway's track record is nothing short of legendary, Buffett's collection of investments contains one noteworthy black-eye for the billionaire octogenarian -- enterprise tech turnaround play IBM (NYSE:IBM).

At present, IBM trades at an absurdly cheap 9.6 times trailing earnings. What's more, IBM's dividend yield tops 4%, which could make its stock particularly enticing for income-seeking investors. For context, the S&P 500's price-to-earnings ratio currently sits at 21 times, and the index's 2.2% dividend yield similarly falls well short of IBM's payouts. The key point here is that IBM's outlook does include some business risk, and any investor considering its stock must seriously weigh the risk-reward equation before purchasing. However, as Buffett reiterated in his recent letter to Berkshire shareholders, IBM's shares today offer a tremendous value for investors who believe the firm will indeed survive its business model transition.

Source: Motley Fool

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