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Warren Buffett's famous for his stock-picking prowess, so when he decides it's time to sell a stock in Berkshire Hathaway's (NYSE: BRK-B) (NYSE: BRK-A) portfolio, it's probably worth paying attention. Fortunately, a big investor like Buffett has to file a quarterly 13F report with the SEC showing exactly what he's been selling, and his latest filing shows he's unloading shares of IBM (NYSE: IBM) and General Motors (NYSE: GM). Should you give up on these blue chip stocks, too?
Lost patience with legacy
IBM is hoping to return to growth with its strategic-imperatives businesses, which sell solutions for high-growth markets including cloud computing. Unfortunately, the headway it's making in these areas has struggled to offset declining demand for its legacy products and services and that's landed IBM in Buffett's cross-hairs.
Image source: The Motley Fool.
Despite double-digit growth in its strategic-imperatives sales in 2017, IBM's companywide revenue still fell 1% to $79.1 billion and its adjusted earnings declined to $13.80 per share from $13.59 in 2016 and $14.92 in 2015.
IBM's inability to more quickly offset revenue and profit headwinds caused Buffett to begin selling shares early last year. In Q1 2017 he sold 17 million shares of IBM, leaving him with 64.5 million shares remaining on March 31, 2017. Since then, he's continued to sell shares and according to his recent 13F report, Berkshire Hathaway finished December owning just 2.05 million shares of Big Blue.
The bad news is that IBM faces significant competition, including in its strategic imperatives business, where it's battling Amazon.com's Amazon Web Services, Alphabet, Microsoft, and others. The good news, is that IBM's strategic imperatives business now represents 46% of sales, so if it can continue growing by double digits, then IBM could post its first full-year revenue growth in years in 2018.
But that growth may not provide a lot of pop to IBM's profitability. IBM's earnings forecast is for $13.80 this year and that only matches 2017's performance. Therefore, until IBM proves to investors that it can reward them with significant top-line and bottom-line growth, it's hard to argue that it's the best blue-chip stock to own.
Image source: General Motors.
Cashing out of cars
Buffett could be getting a bit nervous about the U.S. auto market. He's owned General Motors shares since 2012, but in Q4 the Oracle of Omaha reduced his stake in General Motors by 16.7%, or 10 million shares. If history's any gauge, he probably plans to sell more of his remaining 50 million shares in 2018.