Sometimes, all it takes is a little nudge from the Oracle of Omaha to get a stock going again. Apple Inc. (NASDAQ:AAPL) stock owners are hoping for the famed Buffett bump too, after the iconic investor disclosed that his holding company, Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B) initiated a $1.1 billion stake in Apple in the first quarter.
Markets have already started to respond to the news, and AAPL stock began Monday’s trading up more than 2%.
It’s unlike Mr. Buffett to bet heavily on the technology sector, which he famously avoided until a monster investment in International Business Machines Corp. (NYSE:IBM) in 2011.
Hopefully for AAPL stock owners, Buffett’s support shows that shares have hit rock-bottom. Lord knows there hasn’t been much good news for shareholders in recent weeks or months.
AAPL Stock: A Quintessential Value Play for BRK?
Mr. Buffett’s vote of confidence is important because it comes at a time when market sentiment on AAPL stock is the worst it has been in years. Another high-profile billionaire investor, Carl Icahn, announced that he’d sold all his Apple shares last month, citing an unpredictable relationship with Chinese regulators, who had recently banned Apple’s iBooks and iTunes movies in the country without warning.
If you’re a shareholder, there’s definitely reason to cheer today’s news. While Mr. Icahn is the stereotypical corporate raider — swooping into a position, rabble-rousing and demanding changes, dividends and buybacks, and then selling out — Buffett cares only about long-term investing.
And his record speaks for itself. BRK stock, in the 51 years since Buffett took the reins, has grown at a compounded rate of 20.8% annually, more than doubling the annual per-share gains of the S&P 500 over the same period (9.7%).
Of course, a $1.1 billion bet on AAPL stock isn’t exactly setting records for Berkshire, whose top four holdings — Wells Fargo & Co (WFC), The Coca-Cola Company (KO), IBM and American Express Company (AXP) — accounted for $66 billion in portfolio value at the end of 2015.
But that could be all the more reason to celebrate, since Buffett doesn’t usually make half-certain bets. In fact, I would not at all be surprised if his $1.1 billion bet on AAPL stock increased dramatically in the second quarter, as Buffett attempts to average in at a lower price. At the end of the first quarter, shares were trading at $108.99, while today they trade closer to $92.
AAPL stock also is cheap by conventional metrics, trading at less than 10 times both trailing and forward earnings.
I find Buffett’s billion-dollar bet on Apple to be pretty surprising, but the Oracle of Omaha must see something here — a cash-rich company that the market is overly sour on, perhaps — that he likes.
However, while it’s nice to have the best investor of all time on your team, AAPL stock still faces some fundamental problems, including the uncertainty of China, falling iPhone and iPad sales and overall market saturation.
Personally, I won’t consider buying AAPL stock again until several months down the road when we get a better look at the iPhone 7 and its performance. If the device and/or sales disappoint, Apple’s reign could be effectively over.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at email@example.com.