is sitting on profits of about $47 billion on its almost 6% stake in
making it one of the best investment decisions by CEO Warren Buffett during his 55 years at the helm of the Omaha, Neb.-based conglomerate.
Berkshire’s (ticker: BRKA) holding of 254.6 million Apple shares (AAPL)—based on Sept. 30, 2019, data—is now worth $83 billion, with Apple shares trading Wednesday at $326.70, up more than $9 on the session. Berkshire’s cost is around $36 billion, or $141 a share.
Berkshire amassed the stake largely from 2016 to 2018. It reflected Buffett’s view that Apple should be viewed as more of a consumer powerhouse than a volatile technology hardware business, given the strength of the iPhone ecosystem. He got evidence of that from his iPhone-obsessed grandchildren and great-grandchildren.
“When I take a dozen kids, as I do on Sundays, out to Dairy Queen, they’re all holding their [iPhones],” Buffett told CNBC in February 2017. “They barely can talk to me except if I’m ordering ice cream or something like that.”
Buffett confessed during the segment that he doesn’t personally use an iPhone. He held up his flip phone, joking that “there’s a vast untapped market out there” for phone companies that target 86-year-olds who want simple phones, according to a Barron’s story on the interview.
Apple is by far Berkshire’s largest equity holding. A roughly 10% holding in
Bank of America
(BAC) is second at around $32 billion.
The Apple coup isn’t doing much to lift Berkshire shares, which are trailing the S&P 500 so far in 2020 after badly lagging the index in 2019.
The class A shares, which are up $3,260 Wednesday to $339,260, or 1%, have declined 0.2% in 2020, against a 1.3% gain in the
S&P 500 index.
During 2019, Berkshire rose 11%, 20 percentage points behind the total return on the S&P 500. Berkshire’s class B shares (BRKB) are up $2, at $226.03.
The Apple holding accounts for about 15% of Berkshire’s current market value of $552 billion. Berkshire now trades for about 1.3 times estimated Dec. 31 book value—low relative to its valuation in the past few years. Barclays analyst Jay Gelb sees book value of about $263,000 per class A share at the end of last year.
Gelb has an Overweight rating on Berkshire stock with a price target on the A shares of around $400,000. Berkshire trades for about 20 times forward earnings. The company is sitting on more than $100 billion in cash as Buffett waits to make what he calls an “elephant-sized acquisition.”
Barron’s is bullish on Berkshire’s prospects and made it one of our top 10 stocks for 2020. Buffett may have more to say about the Apple stake in his widely anticipated annual letter to Berkshire shareholders, due to be released Feb. 22.
One unidentified Berkshire holder tells Barron’s that the stock should be trading better given the strength in rail stocks, utilities, and leading auto insurer
Berkshire owns Burlington Northern Santa Fe, one of the country’s largest railroads, a big electric utility business called Berkshire Hathaway Energy, and Geico, the No. 2 U.S. auto insurer, behind only State Farm. Progressive shares, which are up 5.4%, at $80.60, Wednesday, have risen 15% this year. Electric utility stocks are at record levels. All the major rail stocks are higher this year.
Berkshire’s Apple stake probably is its second-most valuable business or investment. The only more valuable piece of Berkshire is Burlington Northern, which is worth over $100 billion based on the current market cap of rival
Write to Andrew Bary at firstname.lastname@example.org