Berkshire Hathaway (BRK.A) Takes 11% Stake in HP (HPQ)

Stake was worth about $4.2 billion prior to announcement; HP shares up sharply

Berkshire Hathaway Inc. (BRK.A, BRK.B) has taken an 11% stake in tech hardware maker HP Inc. (HPQ), according to SEC Form 4 filings. Through April 6, 2022, Berkshire had acquired nearly 121 million shares of HP, which were worth about $4.2 billion as of the close on that date. Moreover, Berkshire is now the largest shareholder in HP.

In morning trading on April 7, shares of HP were up by about 17% from the previous close, having jumped 15% in pre-market trading. HP stock had been a market laggard, its shares up by less than 50% since October 2009.

Key Takeaways

  • Berkshire Hathaway (BRK.A, BRK.B) has taken an 11% stake in tech hardware maker HP Inc. (HPQ).
  • This "validates HPQ's strategy/deep value" writes one analyst.
  • It also makes Berkshire the largest shareholder in HP.
  • In his annual letter released on Feb. 28, 2022, Warren Buffett said that Berkshire was finding "little that excites us" in terms of possible investments
  • However, Berkshire has made three big investments since then.

Berkshire Finds Value

It is unclear whether Berkshire CEO Warren Buffett initiated the decision to invest in HP or if it was executed by one of his two portfolio managers, Todd Combs and Ted Weschler. Buffett traditionally has had the final word on larger transactions.

The investment in HP is also another sign that Berkshire is finding value in U.S. stock market, after a comment by Buffett in his 2021 annual letter, released in February 2022, that the firm was finding "little that excites us." The purchase of HP shares follows a recent investment of $7.5 billion in Occidental Petroleum Corporation (OXY) stock and an $11.6 billion takeover of insurer Alleghany Corporation (Y).

'Validates HPQ's Strategy/Deep Value'

"We view Berkshire buying HPQ shares as a positive that validates HPQ's strategy/deep value," wrote Amit Daryanani, a tech analyst at Evercore ISI, in a note to clients. HP also has one of the largest share buyback programs among companies that Daryanani covers, and this is another reason why he believes that Berkshire's stake "makes sense."

About HP

HP has product lines that include: commercial and consumer desktop and notebook personal computers; workstations; thin clients; commercial tablets and mobility devices; retail point-of-sale systems, displays, and other related accessories; consumer and commercial printer hardware, supplies, solutions, and services; and scanning devices. HP also offers software, support, and services for the commercial and consumer markets. It also has HP Labs and certain business incubation projects. The company was founded by William R. Hewlett and David Packard in 1939 and is headquartered in Palo Alto, California.

Hewlett Packard Enterprise Company (HPE), headquartered in Spring, Texas, is a separate corporate entity spun out of the old Hewlett-Packard.

'Secular Tailwinds Associated With Hybrid'

HP seeks to expand product offerings to take advantage of the global shift toward hybrid work. CEO Enrique Lores told investors in late February 2022: "We continue to see very strong demand, driven in large part by the secular tailwinds associated with hybrid. The way people work and live has fundamentally changed and we see this trend continuing across our segments ... Consumers are investing to improve their home office setups as hybrid work becomes the norm."

Driven by the shift to hybrid work, HP expects the personal computer (PC) market to be worth about $560 billion by 2024. Other growth areas are gaming and 3D printing. In March 2022, HP agreed to buy Plantronics Inc. (POLY), which sells phone headsets and audio and video accessories, in a $3.3 billion deal also spurred by the rise of remote work.

Article Sources
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  1. Financial Times. "Warren Buffett's Berkshire Hathaway Buys $4.2bn Stake in HP."

  2. U.S. Securities and Exchange Commission. "Form 4; Reporting Person: Berkshire Hathaway Inc.; Issuer Name: HP Inc."

  3. CNBC. "Warren Buffett's Berkshire Hathaway Reveals Major Stake in HP Inc., Tech Stock Soars 15%."

  4. Seeking Alpha. "HP Jumps 17% as Berkshire Hathaway and Warren Buffett Buy $4.2B Stake."

  5. Investopedia. "HP Inc."

  6. The Street. "HP Stock Soars As Warren Buffett Reveals $4.2 Billion Stake In Latest Buying Spree."

  7. Bloomberg. "Buffett's Berkshire Builds Up New $4.2 Billion Stake in HP."

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