As if investors needed another reason to own Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B) stock, Warren Buffett’s gone and done just that. You’d have to be living under a rock somewhere not to be aware of the fact Apple Inc. (NASDAQ:AAPL) became the world’s most valuable company in early February; the first to surpass $700 billion in market cap enriching all those owning Apple stock.
Only months ago, Apple was passed by Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) as the world’s most valuable company, but since then, AAPL stock has gone on a huge run, up 52% since May 12, 2016, the day the two companies switched roles.
By comparison, GOOGL stock is up 16% in the same period. A respectable performance — 200 basis points better than the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) — but not enough to keep it in the top spot.
Why AAPL Stock Gives Berkshire Hathaway a Big Boost
Apparently, Warren Buffett and/or his two money managers — Todd Combs and Ted Weschler — were buying heavily in the fourth quarter of the year. At the end of Q3 2016, BRK.B held 15.2 million shares of Apple stock; by the end of the year that ballooned 268.2% to 57.4 million shares, a stake currently worth $7.8 billion through Feb. 23.
As a result of this buying binge, Berkshire Hathaway is one of AAPL’s 10 largest shareholders owning 1.1% of Apple stock. Of greater importance to BRK.B stock owners is the fact AAPL stock is now its sixth largest equity position representing 5% of the entire portfolio and not too far off Berkshire’s investment in International Business Machines Corp. (NYSE:IBM), which accounts for 9% of the equity portfolio.
It’s amazing to think that Buffett didn’t own any tech stocks in 2011 when he started buying IBM and now these two businesses represent one-seventh of Berkshire Hathaway’s $148 billion equity portfolio.
So, if diversification is your thing, Buffett’s move into Apple stock is just another reason why you might want to own BRK.B stock.
Sure, the company is firing on all cylinders, not to mention AAPL stock is still relatively cheap at 16 times earnings or about 25% lower than the S&P 500, but those iPhone sales have a way of going sideways at a moments notice.
Remember the first half of 2016?
It wasn’t all peaches and cream as investors fretted about Apple’s continuing sales slowdown. Ebbs and flows are common in the tech business. Holding AAPL stock within the Berkshire Hathaway fortress allows you to benefit from Apple’s good times without suffering as much when it gets its next tech flu — and it will.
A recent Marketwatch article discussed possible acquisition candidates for Apple’s $200 billion in cash should Trump lower the tax it would pay to repatriate the money sitting in foreign bank accounts.
While those inside AAPL, including its head of content, Eddy Cue, can’t envision a large acquisition that would make sense for the company, one potential media company does come to mind — Sirius XM Holdings Inc. (NASDAQ:SIRI).
It’s a business that’s predictable, generates annual free cash flow of more than $1.5 billion and continues to grow the top- and bottom-line.
Bottom Line on BRK.B Stock
More importantly, Buffett bought 166 million shares of its stock in the fourth quarter to go along with shares already held in Liberty Media’s SiriusXM tracking stock. Combining Apple Music with SiriusXM satellite radio wouldn’t be the worse move in the world.
Heck, by owning Berkshire Hathaway you get a small piece of a lot of pies including Apple.
I’m not the first person to say this about BRK.B stock, but it really is the ultimate mutual fund/exchange-traded fund/hedge fund/private equity fund all wrapped up into one nice, shiny package.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.