Technology

11 Crucial Things to Consider About Warren Buffett's New Apple Stake

Jon C. Ogg

Published: May 16, 2016 4:16 pm

Last Updated: January 13, 2020 7:58 am

Apple Inc. (NASDAQ: AAPL) was back in the news on Monday, but with a bright side for a change. Apple’s stock trajectory and news flow have been less than positive in recent weeks. The full quarterly holdings from the Berkshire Hathaway Inc. (NYSE: BRK-A) filing disclosed that the conglomerate had taken close to a $1 billion stake in Apple’s common stock.

24/7 Wall St. founders have tracked the holdings of Warren Buffett for what is now about two decades. With a 4% rally in Apple on the heels of this news, there are several things that should be considered. Many are positive, but many are not. And it is no longer a secret that Team Buffett often sells its positions far too early.

Here are 11 things that investors should consider here about the Buffett and Berkshire stake that was disclosed. The 13F-HR filing showed that the stake was 9,811,747 shares of Apple.

1. Ultimate Timing and Price — Unknown

There is no way to know what price was paid, nor what date Berkshire Hathaway bought Apple shares. The stake was listed as worth $1,069,382 as of March 31, 2016. Unfortunately for Team Buffett, that stake was worth $888.16 million as of Friday, before the 4% gain after this news broke.

2. They Are Losing Money, for Now at Least.

Apple currently is held at a loss by Team Buffett. The Apple’s high share price during the first quarter was $110.42 (March 30), while the low was $92.59 — versus $90.52 before this news was known.

3. Buffett Himself Wasn’t the Buyer.

This stake likely was not taken by Buffett himself, leaving portfolio managers Todd Combs or Ted Weschler to be the decision makers on this equity position.

4. A Bad to Mixed Technology History

Buffett and his managers have a very odd history when considering technology, and Buffett himself generally has shunned technology. There have been mixed results in other tech stocks, but Buffett’s own selection in International Business Machines Corp. (NYSE: IBM) shares has been rather painful. Buffett keeps adding IBM shares, but IBM’s stock price keeps heading south. They never did buy into Microsoft Corp. (NASDAQ: MSFT) despite the big turnaround and opportunity for Buffett to be able to say he did not have material information.
5. Did the Training Wheels Come Off?

A $1 billion stake, if the stake really was taken by either Weschler or Combs, is larger than either of them has been able to make for routine trades. Generally those stakes had a $400 million limit, at least without getting approval. This could mean that Buffett is turning over more power, similar to Buffett asking them to take a seat on the board of Berkshire portfolio companies.

6. Doesn’t Move the Needle At All

The $888 million, or $1.069 billion at the time, is still chump change and won’t move the needle for Berkshire Hathaway. The conglomerate’s public U.S.-traded equity holdings for the period ended March 31, 2016, was listed as $128.569 billion. Berkshire Hathaway’s own market cap is right at $350 billion, so this is not even one-third of 1% of the entire Berkshire Hathaway value.

7. Value Gain for Apple Better Than for Buffett

The stake meant more for Apple than it did for Berkshire, even with a 4% gain. That 4% gain translated to almost $20 billion gained in the market cap of Apple, roughly 20 times the entire Buffett/Berkshire stake.

8. Berkshire Already Better Than Apple?

Berkshire Hathaway shares were already relatively close to 52-week highs coming into this news. The $212,140 pre-Apple share price was against a 52-week high of $221,985. Apple is way down from its highs.

9. Apple Fundamentals Remain Downward.

Things have become more cautious for Apple since the first quarter rather than better. A slower refresh rate for the smartphone cycle is expected for the iPhone 7 coming later in 2016 (probably), and the smaller iPhone version comes with smaller margins. To prove the point: Apple’s consensus analyst target keeps drifting lower. It was $148 at the start of January, versus under $130 now.

10. Buffett Still Prefers Bill Gates.

Bill Gates still has one best friend in technology, and it is not Tim Cook. It is Gates, who is no longer managing Microsoft, though he is still a rather large holder of Microsoft shares. Buffett’s fortune is still headed toward the Bill & Melinda Gates Foundation after his death. Don’t count on the Buffett companies moving their PCs into Macs any time soon.

11. Helped Apple Reclaim Most Valuable Stock Title

The Buffett-stake news helped Apple retake the most valuable position back from Alphabet Inc. (NASDAQ: GOOGL). It was just in the recent days that Alphabet was listed again as worth more than Apple, but the company formerly known as Google (and should still be) has a market cap of $501.5 billion, versus $515 billion for Apple.

News that Alphabet was second again was not even dependent on record fines for search dominance being talked about in the news.

Again, it is not bad news that Buffett and his team took a stake in the mighty Apple. There is just not the great halo-effect that is so obvious here, even with such a big gain in Apple shares.

Apple closed trading up 3.7% at $93.88 on Monday. Its 52-week range is $89.47 to $132.97.