Warren Buffett, the billionaire investor who caused a stir last year when he bought a big stake in tiny Bell Industries Inc., sparked a rally in Bell's stock and then quickly sold out for a handsome profit, has once again bought a sizable position in the El Segundo company--again sending its stock sharply higher.
Buffett bought 442,200 shares, or 5.1%, of Bell's common stock outstanding, according to a filing with the Securities and Exchange Commission. In response Wednesday, Bell's thinly traded stock jumped $1.06 a share to close at $3.13 on the American Stock Exchange.
Buffett--who controls Berkshire Hathaway Inc., an Omaha, Neb.-based holding company for his investments and operating companies--once again bought the Bell stock with his own money, not Hathaway's. And as investors learned the last time, that's an important distinction for anyone evaluating Buffett's interest in Bell.
Buffett, 70, made his wealth and reputation as a long-term, buy-and-hold investor by using Berkshire as his vehicle for buying major stakes in companies and then patiently waiting years for those investments to soar in value.
But as his earlier experience with Bell showed, that's not always Buffett's practice when he pulls out his own wallet. In that case, Buffett bought a 5.3% stake in Bell in early December 1999, triggered a surge in Bell's market price, and then dumped his stake a month later for a profit of about $1 million, or 50% on his original investment.
Other investors who mistakenly thought Buffett was in for the long haul then watched as Bell's stock plunged from $8.38 a share to about $4 a share on news of Buffett's sudden departure. For the last several months, it's been trading between $1.50 and $2.50 a share. Buffett's filing didn't specify what he paid for his Bell stock.
Buffett's office said he was traveling Wednesday and unavailable to comment on why he's attracted to Bell again. Tracy Edwards, Bell's chief executive, said in an interview that Buffett had not talked to him about his newest purchase of Bell's stock, but that "we'd love to have him as a long-term investor."
Edwards last time expressed disappointment that Buffett hadn't stayed with the company longer, because Edwards had hoped to show Buffett that Bell--which has been evolving from an electronics distributor to a "systems integrator," in which it helps customers connect computers with other companies and organizations--could be a better performer.
Yet Edwards said Wednesday that he's not unsettled by Buffett's return. "We've had investors in and out of our stock over the years," he said.
He also has other problems to worry about. As its stock indicates, Bell has struggled this year. In the nine months ended Sept. 30, Bell's profit tumbled 59% from a year earlier to $1.8 million, as its revenue slipped 2% to $189 million.
"A number of the players in our industry have had difficulty meeting [earnings] projections and there certainly has been pressure on product [profit] margins, which is a sizable revenue base for a lot of these companies, including ours," Edwards said.
"We've been fairly cautious as to projecting any ambitious expectations this year," he added.
Despite Berkshire Hathaway's record of patiently holding stocks, Buffett himself often makes small, quick purchases of stocks with his own money to generate income, according to people familiar with his investment habits. That's especially true if he's confident of generating a low-risk, sizable return in short order, they said.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Bell Industries shares surged in December on news Warren Buffett had taken a stake--and jumped again Wednesday after Buffett said he was back in the stock.
Monthly closes and latest for Bell Industries on the American Stock Exchange
Wednesday: $3.13, up $1.06
Source: Bloomberg News