Warren Buffett said "I clearly like Apple. We buy them to hold," Buffett said on CNBC's "Squawk Box." "We bought about 5 percent of the company. I'd love to own 100 percent of it. ... We like very much the economics of their activities. We like very much the management and the way they think." While Berkshire Hathaway owned almost 5% of Apple at the end of June the price may have dipped low enough in the June quarter to entice Buffett.
As of March 30 Berkshire owned over 239 million shares of Apple or 4.7% of its total shares. Apple constituted over 21% of Berkshire’s public company portfolio per WhaleWisdom.com, with Wells Fargo being the firm’s second-largest holding at 12.7%. Rounding out the top five are Bank of America at 10.8%, Kraft Heinz at 10.7% and Coca-Cola at 9.2%. These five out of 48 companies compromise over 64% of Berkshire’s public company investments.
The case for Berkshire to not buy more Apple
After buying 31 million Apple shares in the December 2017 quarter and then 74 million in the March quarter, Buffett almost doubled the fund’s position. While he believes in concentrated investments, with Apple at 21% of the portfolio it could be hard to increase this percentage unless there is a large cash infusion into the fund.
Buffett also likes Tim Cook’s strategy to buy back stock. With Apple planning to go to a cash neutral position and increasing its buyback plan by $100 billion this past May, Berkshire’s ownership in the company could increase “automatically” to about 5.5% in the next year or two depending on how fast shares are bought back and at what price. As Apple gets to cash neutral and generates more cash each year, Berkshire’s ownership could increase by about 1% every two to three years.
The case for Berkshire buying more Apple
The biggest reasons for Berkshire to buy more Apple is the stock’s valuation, what many consider to be a recurring revenue stream due to iPhone owner’s loyalty, the outlook for the company to continue to generate cash and its planned buybacks.
If Buffett or the fund’s portfolio managers were to buy more Apple, I believe it would be during periods when the stock is under pressure. One of these timeframes occurred in late April, a week before Apple announced its March quarter results on May
Since Berkshire bought such a large quantity in the March quarter at similar to potentially higher prices, it would not surprise me if the fund decided to pick up some more in the June quarter. Probably not to the degree it did in the first quarter, but enough to increase its position by another 1% of Apple’s shares.
Berkshire’s Apple purchase history
Berkshire made its first Apple investment during the March 2016 quarter, buying 9 million shares. The stock was trading between the high $80’s and just below $110. The fund’s first large buy of 42 million shares occurred during the December 2016 quarter with the stock just above $100 and about $115.
The fund made its second largest purchase of 72 million shares in the March 2017 quarter when the stock moved from $115 to just above $140. Berkshire made small investments during the June and September 2017 quarters and then added 31 million shares in the December 2017 quarter when the stock traded between $150 and approximately $175.
In the March 2018 quarter, Berkshire bought the largest amount of shares at 74.2 million bringing its total holdings to over 239 million, or 4.7% of the company’s shares. We don’t know the dates that the fund bought them, but I suspect a large percentage were when the stock fell in late January and early February.
