Competitive advantage

For years Buffett shunned the technology sector. He spoke of the limited competitive advantage in tech and the difficulty of identifying the few potential winners in advance and being able to buy them at reasonable prices.

It came as a surprise when he revealed in November 2011 that he’d invested $10.7bn in IBM. Despite his aversion to tech, he said he’d read IBM’s annual report every year for 50 years.

He explained that when he read it the latest one, “I got a different slant on it”. He went round the IT departments of all the companies in his Berkshire Hathaway conglomerate. “I just came away with a different view of the position that IBM holds within IT departments and why they hold it and the stickiness and a whole bunch of things,” he said.

Buffett had spotted that IBM, due to the “stickiness” of its customers, had a durable competitive advantage. Tech sector it might be, but the facts had changed and Buffett changed his mind too.

Industry dynamics

If he was negative on tech for a long time, he was absolutely scathing of airlines. He described the industry as “a death trap for investors”, again citing the lack of a durable competitive advantage, which he said “has proven elusive ever since the days of the Wright Brothers”.

However, when Berkshire released its Q3 filings in November last year they showed a stake in three of the four major US airlines — American Airlines, United Continental Holdings and Delta Air Lines. Now, these were relatively small investments and were likely made by one of Buffett’s lieutenants, Todd Combs or Ted Weschler, but there’s some indication that the man himself may have been behind a Q4 investment in the fourth major carrier, Southwest Airlines.

It will be interesting to hear what he has to say when he next speaks on airlines, but the dynamics of the industry appear to have changed in recent years, with the big four US carriers all showing rapidly improving profit margins.

A big mistake

Finally, Tesco is an example of a stock that Buffett changed his stance on from positive to negative. At the end of 2012, he owned 415m shares but during 2013 sold 114m, having “soured somewhat on the company’s then-management”.

He confessed to making a “big mistake” by dawdling in selling the remainder of the shares throughout 2014, as Tesco’s problems worsened by the month. He said he should have sold earlier, because “you see a cockroach in your kitchen; as the days go by, you meet his relatives”.

The changing world

While there are many constants in business, industries — and companies — don’t remain the same indefinitely. They may expand, decline, evolve, but rarely do they stand still (and as we’ve seen, Tesco itself hasn’t stood still in just the past couple of days).

At 86 years old, Buffett hasn’t become set in his ways but remains flexible in his thinking, open to changing his mind (and the stocks he’s willing to invest in or ditch) as the world around him morphs. Staying alert to the risks and opportunities in a changing world is surely one of the keys to better investing.

The post 3 stocks Warren Buffett changed his mind about appeared first on The Motley Fool UK.

More reading

• Up 11% today, could the Magnum Ice Cream share price be an overlooked bargain?
• As Endeavour Mining shares jump 7% on Q1 results, is this a way into the gold rush?
• £5,000 invested in this red hot FTSE 250 growth stock last month is now worth…
• Missed the ISA deadline? Ignoring the next one could mean throwing away a £5,150 annual second income opportunity!
• As Standard Chartered shares jump on impressive Q1, is this a FTSE 100 banking bargain?

G A Chester has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares). We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Software star

Shares in IT giant Fidessa Group (LSE: FDSA) were basically unchanged in Thursday trade, despite the release of a positive trading update.

Although trading conditions remain difficult for the software play’s client base, Fidessa advised that

“the themes Fidessa saw during 2015 are continuing, with more opportunities opening up as customers position their businesses for the future.”

Indeed, Fidessa said that it expects the investments made during the recent downturn to leave it well positioned for the near-term and beyond.

The City certainly believes that Fidessa is a company on the rise, and expects earnings to rise 4% in 2016 and 5% in 2017. While subsequent P/E ratings may be a tad heady on paper, a dividend yield of 3.5% through to the end of next year helps to mitigate these elevated multiples. I reckon Fidessa could prove a canny growth pick as market conditions steadily improve.

Over and out?

Things are not quite as bubbly over at digital radio manufacturer Sepura (LSE: SEPU), however. The stock continues to oscillate wildly, and although shares are up 18% in Thursday business, Sepura’s value is still down almost three-quarters since the start of the month.

Sepura announced at the beginning of April that “two significant opportunities” had not been signed-off in time for the close of the year. As a result, the radio specialists expected EBITDA for the period to March 2016 to register between €16m and €20m.

This estimate was confirmed today, with full-year earnings chalked up at €17m. However, the failure of Sepura to close out the orders has placed huge stress on the balance sheet. The company now plans to raise £50m via a rights issue, and has commenced talks with its creditors over possible covenant breaches.

Still, today’s release further illustrated the breakneck demand for Sepura’s gizmos, with organic revenues rising by 10% last year to €145m.

The City consequently expects earnings to surge 96% and 11% in 2017 and 2018 respectively, resulting in P/E ratios of 9.8 times and 9.1 times. And these ultra-low readings suggests that the near-term risks facing Sepura are currently baked into the share price.

WANdisco dances higher

Software play WANdisco (LSE: WAND) has fared much better in Thursday’s session, with an 18% surge taking the stock to levels not seen since last July.

The market became giddy following news that the firm had inked a non-exclusive OEM sales agreement with IBM, a move that will see WANdisco’s Fusion data replication product installed as a standard component for the US giant’s storage and analytics software.

WANdisco advised that

“whilst we expect that revenues will begin to flow during the second half of this year, we will provide further guidance once product launches have taken place and initial customer uptake has been evaluated.”

News of monster deals like these should, of course, make investors sit up. But the full financial impact of this latest accord is yet to be evaluated. And in the meantime, WANdisco is likely to remain at the mercy of variability in new contract bookings.

The City expects the tech play to remain in the red for the foreseeable future, with losses of 67 US cents and 55 cents expected for 2016 and 2017 respectively. I reckon investors should give WANdisco a miss until it can show signs of sustained revenues growth.

The post Should you buy WANdisco plc, Fidessa Group plc & Sepura plc & today? appeared first on The Motley Fool UK.

More reading

• Up 11% today, could the Magnum Ice Cream share price be an overlooked bargain?
• As Endeavour Mining shares jump 7% on Q1 results, is this a way into the gold rush?
• £5,000 invested in this red hot FTSE 250 growth stock last month is now worth…
• Missed the ISA deadline? Ignoring the next one could mean throwing away a £5,150 annual second income opportunity!
• As Standard Chartered shares jump on impressive Q1, is this a FTSE 100 banking bargain?

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Fidessa. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

It trips off the tongue nicely, just like other catchy phrases such as ‘peak oil’, ‘commodity super-cycle’, or perhaps, ‘tech wreck’.

Getting serious

I used to think the Internet of Things was no more than a theory or device conceived to stoke up interest in tech firms to encourage investors to buy shares.

However, as news flow gathered pace over recent months I’ve changed my mind. Now I think the so-called Internet-of-Things (IoT) opportunity is a real potential driver of future profit growth for firms such as London-listed ARM Holdings (LSE: ARM) and IBM (NYSE: IBM.US).

Yesterday’s news from IBM gives me further reason to think seriously about the potential of the Internet of Things. A headline-grabbing announcement trumpets ‘IBM and ARM Collaborate to Accelerate Delivery of Internet of Things‘.

To me, that’s potentially big news. I’ve watched as ARM made a string of IoT-related acquisitions over recent months and then launched its IoT Subsystem, to ensure future generation IoT devices are designed with ARM technology inside.

Now, big players like IBM have noticed ARM’s progress and want to collaborate with the firm.

Another level

ARM’s IP has been in existing IoT devices for some time and it therefore seemed likely that the firm’s new ‘off-the-peg’ IoT solution would gain wide acceptance amongst manufacturers and businesses. That’s what is happening now, as IBM demonstrates.

IBM reckons it’s expanding its IoT platform — called IBM IoT Foundation — through integration with ARM by providing out-of-the-box connectivity with ARM mbed-enabled devices to analytics services. This fusion, IBM says, will allow huge quantities of data from devices such as industrial appliances, weather sensors and wearable monitoring devices to be gathered, analysed and acted upon.

ARM says that its collaboration with IBM will deliver the first unified chip-to-cloud, enterprise-class IoT platform, and that will empower companies of any size, big, small and in-between, with a productivity tool that can transform how they operate and the services they can offer.

Products powered by ARM mbed-enabled chips will be able to automatically register with the IBM IoT Foundation, and connect with IBM analytics services. That situation will unify the two firms’ offerings at the point where information gathered from sensors in connected devices is delivered to the cloud for analysis.  

It all boils down to an efficient structure to get the IOT vision working, so that washing machines can tell their owners when they are faulty, owners can open their garage doors two blocks before they arrive home, smart TVs can be operated remotely and security systems can talk directly with home and business owners, and whatever other applications we can think of.

What next?

The important thing for ARM investors like me is that the more ARM’s IOT solution gets into the supply chain the more revenue and profit the firm is likely to earn from the IOT trend.

Already, electronics manufacturers are adopting IBM’s cloud services to connect everything, and now ARM Holdings has secured its niche in the middle of that trade. Once again, ARM comes up smelling of roses and demonstrates how it keeps itself embedded in the latest trends and technologies of our time that keep driving the firm’s profit growth. 

The post ARM Holdings plc Partners With International Business Machines Corp. To Drive The Internet Of Things! appeared first on The Motley Fool UK.

More reading

• Up 11% today, could the Magnum Ice Cream share price be an overlooked bargain?
• As Endeavour Mining shares jump 7% on Q1 results, is this a way into the gold rush?
• £5,000 invested in this red hot FTSE 250 growth stock last month is now worth…
• Missed the ISA deadline? Ignoring the next one could mean throwing away a £5,150 annual second income opportunity!
• As Standard Chartered shares jump on impressive Q1, is this a FTSE 100 banking bargain?

Kevin Godbold owns shares in ARM Holdings. The Motley Fool UK has recommended ARM Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.