Duquesne Capital’s Stanley Druckenmiller respects Warren Buffett’s opinion on International Business Machines Corp. (NYSE:IBM); he just doesn’t agree with it. In an interview with CNBC yesterday, Druckenmiller offered his take on the staunch viewpoint Buffett has taken concerning IBM, in which he has said IBM is doing exactly what he expects, and that the company’s share buyback program is a good thing.
“Mr. Buffett and I have a different opinion on International Business Machines Corp. (NYSE:IBM). I certainly respect his opinion, but I have my own. My guess is looking at the situation; he thinks IBM’s problem is cyclical. I think it is secular and if you think a company has a secular problem, particularly with sales being lower than where they were six years ago when the economy was much worse, the last thing they should be doing is buying back stock,” Druckenmiller said.
Buffett increased his position in International Business Machines Corp. (NYSE:IBM), one of his “Big 4” holdings during the fourth quarter to 76.97 million shares, up 10% from the 70.48 million he held at the end of the third quarter. While IBM had a strong run coming out of the 2008 financial crisis, gaining nearly 150% from late 2008 to early 2012, shares are down nearly 25% since and 13.31% in 2014, as PC sales have stagnated in the face of the growing popularity of mobile computing, leading to revenue declines for 11 straight quarters.
Hedge funds seem to be lukewarm on International Business Machines Corp. (NYSE:IBM) in relation to Buffett, and considering the reduced barrier of entry. While fund ownership increased to 58 from 56, in terms of percentage of fund ownership, it actually declined to 7.9% from 8.2%, as we added dozens of additional funds to our database during the past quarter. Invested capital also decreased to $14.50 billion (of which 86% of that capital was Buffett’s), down from $15.43 billion at the end of the third quarter.
Capital did show a slight uptick however if we disregard the fluctuation in the stock, which declined over 15% during the fourth quarter, while invested capital declined only 6%. Again however, this can largely be attributed to Buffett’s own moves on the stock during the quarter, as he added about $1.04 billion worth of stock to his portfolio. Without his contribution, invested capital declined by about 12.7%, only slightly less than the decline in shares, showing only a modest increase in capital from other hedge funds.
Let’s check out two stocks Druckenmiller does have faith in heading into 2015, both of which were added to Duquesne Capital’s portfolio during the fourth quarter: Facebook Inc (NASDAQ:FB) and bluebird bio Inc (NASDAQ:BLUE). Duquesne opened a position of 430,000 shares on the former, and a 355,400 share position on the latter, which were valued at $33.5 million and $32.6 million respectively. Despite shares becoming somewhat stagnant over the past six months, up just 4.4%, Facebook shows growth in its advertising revenue, though user base growth is beginning to slow. The company has several projects it’s working on, however, that could kickstart growth again and make Facebook the number one place for social interactions, particularly among the younger crowd, which has increasingly migrated to other social networks like Instagram as Facebook became increasingly mainstream (and all their parents were on it and could see their feeds).
Oculus Rift, which Facebook Inc (NASDAQ:FB) purchased last year for $2 billion, could bring them back, allowing people to send and receive virtual reality messages created by the sender, that the person can experience as if it were real, through the device’s VR headset. It’s possible users could also hang out with each other virtually or undertake virtual activities together in real-time through the devices. While Oculus will have a good deal of competition in the VR gaming space from other similar headsets, it will be unrivaled in the social media space and could be the next great evolution for the company.
To say bluebird bio Inc (NASDAQ:BLUE) closed 2014 with a bang would be an understatement. Shares of the clinical-stage biotech company more than doubled in December following positive trial results for its beta thassalamia gene therapy treatment. In addition to its gene therapy treatments, bluebird is also in the process of researching gene editing treatments after acquiring Precision Genome Engineering last summer. Those treatments could be used to target and alter specific sequences in a target’s DNA, potentially allowing it to correct gene mutations and regulate gene expression.
While we don’t know whether Duquesne purchased its shares before or after the December spike, it appears to be a wise investment either way (though admittedly a VERY wise one if before); shares are up another 6.83% year-to-date, and analysts are extremely bullish on the stock, with Wedbush Morgan analyst David Nierengarten rating it “Outperform” with a target price of $146 near the end of February. The target price attaches a nearly 50% premium to the stock, which trades at $97.55 in morning trading on Tuesday.
Disclosure: None
