We recently had a chance to interview one of the portfolio managers for the Ranger Equity Bear ETF (HDGE), which is an actively managed short selling exchange-traded fund. It acts like a short selling hedge fund but with instant market liquidity features that an ETF structure provides. The ETF's major short selling position in shares of International Business Machines Corp. (IBM) was what really piqued our interest. Investors did well who decided to move out of IBM as Big Blue's stock price has managed to fall by more than $11 per share since then. It turns out that the team here remains a short seller of IBM, and this is indirectly a bet against Warren Buffett.
The reason we are revisiting this is not just to offer a cheerleading session for a short seller, but because IBM is extremely important to the market. IBM is not just a DJIA component. It is the largest DJIA component by far because of its share price being so high and the DJIA being a price-weighted stock index rather than a market cap-weighted index. Another reason that IBM is of such interest to us on a slow August day is that it is one of the cheapest Warren Buffett stocks for value investors if you use the implied upside expected by Wall Street analysts. IBM has now hit a new 52-week low, but the consensus analyst price target implies something to the tune of 17%.
Warren Buffett might not care what outsiders think about his positions. After all, he is supposedly targeting years and years out into the future. Unfortunately, Mr. Buffett picked one of the top non-retail dependent technology giants that has no growth and has a crummy quality of earnings growth. We would also note that the Ranger Equity Bear ETF (HDGE) previously told us that IBM screens out as a cheap stock for a reason.
Brad Lamensdorf just responded to us that IBM remains the largest short sale position of the Ranger Equity Bear ETF (HDGE). He told us in a response that the Ranger Equity Bear ETF is still short IBM. Mr. Lamensdorf said,
"It is our biggest position (short). It trades terrible and we are trying to keep it at 6%. We continue to believe that as the cloud matures that this will continue to eat into the UNIX biz that is one-third of the overall sales. Their earnings quality is also poor as they have used cash-flow to engineer their way to earnings while their core business has been sliding."
Since Warren Buffett's entire team at Berkshire Hathaway Inc. (BRK-A) never responds to any question or communication of any substance on even the most basic inquiries, we did not bother asking them for a comment on the IBM position. Buffett's 68.1 million share stake is worth close to $12.57 billion now that Big Blue's stock price hit a 52-week low of $184.55 on Monday. IBM's stock price was at $210 as recently as the start of June.
IBM's shares were down almost 0.5% at $184.55 in late-Monday trading and its new 52-week trading range was $184.40 to $215.90.