On May 16th of this year, Warren Buffett’s Berkshire Hathaway, Inc. announced a more than $1 billion stake in Apple Inc in a rare venture into the tech sector that Buffett has largely moved away from based on a struggling performing investment in IBM. Shares of Apple advanced 3.7% after the news was announced, closing up $3.36 at $93.88. Berkshire made its investment in the first quarter, prior to the iPhone maker in April displayed its first quarterly revenue drop in 13 years.
The investment into the tech stock was announced among an increasing display amid investors that Apple might experience a lower valuation because its strong growth days may potentially have come to an end. Though, Apple does have a robust balance sheet and management, qualities long favored by Berkshire. “It makes sense because it’s a consumer company disguised as a technology company with a great business model, strong cash flow and a cheap valuation,” stated Jeff Matthews, author and principal at the Ram Partners LP hedge fund. “It’s not a leap of faith.”
In a regulatory filing specifying most of its stock positions, Berkshire has noted it held 9.81 million Apple shares that amounts to $1.07 billion as of March 31st of this year. The value of the position has dropped to approximately $921 million since that data, even with Monday’s increases. Berkshire’s biggest technology bet has been Buffett’s $12.1 billion stake in IMB, an investment currently more than $1.6 billion in the red. Founder of Wallman Investment Counsel, Steve Wallman quoted, “Apple’s stock is stunningly cheap, and it has a massive pile of cash.” Wallman Investment Counsel has owned shares of Berkshire now for 34 years and Apple for 13 years. “Apple is not getting credit for research and development it is doing behind the scenes.”
The investment in Apple was made by one of Buffett’s second-in-command, Todd Combs and Ted Weschler, state by his assistant in an email to the Wall Street Journal. Both Weschler and Combs ran hedge funds before working with Berkshire, each invest roughly $9 billion and typically make smaller bets, while Buffett, also referred to as the Oracle of Omaha, makes larger investments like the one he made for IBM.
Last month, Apple reported revenue for the quarter ended March 26 dropped as an advancing saturated smartphone market affected iPhone sales, which declined for the first time.
CEO of Apple Tim Cook is searching to develop other technologies for the Cupertino, California-based Company, and last week announced a $1 billion dollar investment in Chinese-ride- hailing service Didi Chuxing. Finally, Apple’s market value last week dropped under that of Google parent Alphabet Inc, though Apple produces approximately triple the revenue and profit. Prior to Monday, shares of Apple had fallen by a third from their April 2015 highs.