Why Did Warren Buffett Buy So Much HP Stock?

Warren Buffett

Meet Warren Buffett, the fifth-richest Forbes 400 member and Berkshire Hathaway Chairman. As of March 2022, he had a net worth of $125 billion. Over the years, Buffett has become one of the most influential entrepreneurs in the US and globally. Dubbed the “Oracle of Omaha,” he has made investment decisions, some of which have worked in his favor or made him wish he never gave it a thought. The latest investment selection was HP. So, why did he buy so much HP stock? Here is all you need to know about HP and how Warren Buffett comes in.

An overview of HP

In 1939, Bill Hewlett and Dave Packard joined hands to launch an audio oscillator. Both were electrical engineering graduates from Stanford University in 1935. It didn’t take long before one of their first customers, Walt Disney, bought the gadget to test a piece of audio equipment in their theaters. They introduced HP 21161 into the computer industry in 1966. Towards the end of the 1980s, HP owned a full range of computing equipment, marking the beginning of first-generation computers.

What’s in for Warren Buffett with HP?

Warren Buffett’s net worth has continued to rise in investments in technology stocks over the years. A while back, he invested in Apple, IBM, and Oracle. According to Forbes, Buffett’s latest investment is on PC Maker, where he owns an 11.5% stake. According to ABC News, HP’s shares rose by 15% on April 7, 2022, after Buffett’s company (Berkshire Hathaway Inc.) put up more than 11% of the computer and printer. When filing with the Securities and Exchange, Berkshire confessed that they own approximately 121 million shares in HP. It is said that things haven’t gone so well for HP in the past decade. Wall Street is particularly wary about the computer maker’s strategy of spinning off its computer business and then channeling the funds to Autonomy’s UK software company. Its stock price came down to 43.47% in 2011. However, since Berkshire disclosed its purchases, HP shares increased by more than $5 and closed at $40.06. With Headquarters in Palo Alto, California, Buffet seems like a wise decision to invest in value tech. Berkshire also has shares in BYD (an electric car manufacturer), American Express, Coca-cola, credit rating agency Moody’s, and Bank of America. These industries lean more on the consumer, insurance, and energy, a perfect investment strategy that complements the company’s model. So, bringing tech space on board is an added advantage.

Was it a good or bad decision for Warren Buffett to invest in too much HP stock?

The stock exchange market is unpredictable, so you can’t say if Buffett made a good or bad decision to invest in HP stock. We’ll cover the pros and cons of investing in HP stock to help you make a wise decision.

1. HP has a good track record for giving back to its shareholders

HP is known for putting up a lower price than its earnings, which is a trait it closely shares with Berkshire. It also has a good track record of using dividends and repurchases to pay back its shareholders. So, that means you will get a quarterly dividend of 25 cents per share if you’re a shareholder.

2. Its shares have skyrocketed since Berkshire came on board

HP shares rose to 18% by Thursday, April 7, 2022. So, for Berkshire to hold around 121 million HP shares (roughly 11.5% stake), you have every reason to invest in it.

3. It is a technology service

If you are a large business, investing in HP stock might be rewarding, considering that it is a top player in the IT service. By joining hands with HP, you will build customer loyalty and make your business upsell-worthy as far as technology is concerned. IBM has used this model over the years, so HP is worth the gamble.

1. The hype about HP products is no longer there

Though HP has a strong foothold in computer hardware and printing space, it is likely to experience a temporary slowdown thanks to low hype from customers. Buyers are looking the other way. Even in third world countries, Apple products and other superior computer companies are considered superior to HP products.

2. Customers lack an obsessive need to purchase HP products

Considering how having an iPhone, iPad, and MacBook is popular these days, it is no surprise that Apple is eating into market share. So, while it’s an excellent idea to invest in HP, remember, it’s too late. IBM tried it and got disappointed. So, competitors like DELL might take advantage of HP’s inadequacies to grab the largest market share.

3. It lacks moat

The term “economic moat” was popularized by Warren Buffett to mean a business having a competitive edge over its rivals. Unfortunately, HP doesn’t have that moat, and it has demonstrated its weaknesses in dealmaking. It first started with 3Com, and in less than two months, it had already dropped its mobile strategy. Stock exchange analysts argue that HP’s involvement with Autonomy might seem convenient, but the idea seems dead on arrival because the valuation is at ten times the revenue.

4. Buffett confessed that tech companies are unpredictable

For a long time, Buffett has avoided investing in technological companies. His reason is that selecting long-term winners was a gamble. Surprisingly, he liked how Apple’s stock behaved, so he bought more than 5.6% of the iPhone maker. He predicts that his decision to invest in HP will have the same results as Apple.

Verdict

A turnaround will likely salvage its lousy reputation in dealmaking from HP’s history of challenges. Berkshire’s involvement in its stock is the first step towards restoring its lost glory and making it survive the harsh economic times. Will Warren Buffett keep making HP proud that it brought him on board? We never know as time will tell. Meanwhile, it would help to consider digging deeper into the stock while keeping in mind the risks that come with negative growth prospects in the future.

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