Is Warren Buffet late to the party with his HP purchase?

Warren Buffett, chairman of Berkshire Hathaway and legendary investor, has kept nearly $149 billion in cash over the past two years. However, he has now started to put that cash to good use and HP is the most recent stock to join his buy list.

HP stock soared on news of Buffett's purchase. However, some analysts believe that the stock has risen too much following the Buffett purchase. What is the outlook for HP stock and is Buffett behind in buying this stock?

Share buybacks by Berkshire Hathaway

Buffett lamented the lack of good investment opportunities, including his "elephant" which is a multi-billion dollar acquisition opportunity. In February, Buffett spoke about the mass of liquidity and the lack of opportunities in his annual letter.

Buffett, who has been a net seller of stocks throughout last year, said in his letter, "Today, internal opportunities offer much better returns than acquisitions. However, the size of these opportunities is low relative to Berkshire's resources. Our second choice is to buy non-controlling interests in the many quality or excellent companies that are publicly traded. From time to time, these opportunities are both plentiful and glaringly attractive."

Buffett buys a sizable stake in HP

However, according to Mr. Buffett, "Today, however, we don't find much to excite us. This is largely because of a truism: Low long-term interest rates push the prices of all productive investments on the rise, be it stocks, apartments, farms, oil wells, whatever."

The Oracle of Omaha spent nearly $50 billion to buy back Berkshire stock. However, over the past two months, he has been buying stocks aggressively. Prior to HP, he also invested in Occidental and Alleghany. While it's still a month away from receiving Berkshire's Q1 13F, it looks like the company was a net buyer of stock in the quarter, unless of course Buffett was aggressively selling. shares of its holdings.

Berkshire is HP's largest shareholder

Going back to HP, Berkshire is now the company's largest shareholder, with a stake over 10%. Buffett's track record in tech stocks isn't stellar, and IBM is one of his forgotten investments. He also sold Oracle less than a quarter after buying it, unlike the Buffett who is known to hold onto stocks for decades.

However, Berkshire's largest holding is Apple, a technology company. Buffett views the iPhone maker as a consumer company and regrets selling even a few Apple shares.

What is Wall Street's view on Buffett's purchase of HP?

News of Buffett's purchase of Apple took the market by surprise. Morgan Stanley analyst Erik Woodring said, "We believe Buffett's investment is a long-term bet on HPQ becoming a winner in the hybrid labor market, given the company's position in as the world's largest printer supplier (by units and revenue) and second largest PC supplier."

Is Buffett late to the party?

Many observers have been wary of Buffett's purchase of HP stock. Critics point out that there is no moat in the business and that Buffett's track record isn't great when it comes to identifying tech companies. Some also believe that Buffett arrived late to the party, as the rise in PC demand has petered out and the sector faces near-term stagnation.

But Buffett is not interested in short-term trends. It seems to be betting on the theme of digitization with the purchase of HP. While it's true that he may have been a little late buying HP stock, the same argument was made when he bought a stake in Apple. The stock has since ballooned and Berkshire Hathaway is sitting on billions of dollars in unrealised gains on that investment.

HP stock is off its recent highs. Long-term investors can start building positions in the stock at these price levels. You can buy HP shares through one of the best stock brokers to invest through. Besides, if you want to trade derivatives, we have also reviewed a list of CFD brokers you can consider.