What Warren Buffett Sees In IBM That Rest Of Market Doesn't? Bernstein Analyst Explains

The last one year has been great for the tech companies when it comes to stock performance, with the NASDAQ returning over 16 percent, several tech companies have seen their shares skyrocket. However, International Business Machines Corp. (NYSE: IBM) is an exception.

The stock is down more than 10 percent year to date and has been trading in a range close to $160 levels since the past four months. The only good news concerning the company recently has been Berkshire Hathaway Inc. (NYSE: BRK.B) chairman, Warren Buffett, increasing his stake in it.

Toni Sacconaghi, Bernstein senior analyst, was on CNBC Thursday to discuss whether the company can make a turnaround and Buffett increasing his stake.

Can IBM Make A Turnaround?

“It’s a long road back,” Sacconaghi said. “I mean many technology companies today, [old-line] technology companies are facing this transition between old technologies and new technologies. The world is moving to cloud, the world is moving to big data and that present a challenge for all the […] companies.”

Does The Company Have The Right CEO?

“I believe that Ginni [Ginni Rometty] is a good leader and I think she has positioned the company well, but we are talking about an elephant here, we are talking about a company that has over 400,000 people that has traditional businesses in mainframe and high-end computing,” Sacconaghi replied.

What Buffett Sees In IBM That Rest Of Market Doesn’t?

“Well, look, I think if you are Warren Buffett, you say, ‘I like companies that produce a lot of cash, that have high return on equity and I like companies that ultimately deploy that cash sensibly, buyback stock, don’t do crazy acquisitions and have a lot of recurring revenues and profits’, IBM fits all those criteria.”

He continued, “So if you are Buffett and you say I don’t like technology, I don’t understand it, let me find a company that has characteristics of insurance, characteristics of the kind of companies that I like, IBM in tech is about as close as you can get.”