World most famous, daring and respected investor, Warren Buffett of the Berkshire Hathaway made another brave and audacious investment move with a $1 Billion investment in the Cupertino, Califonia based Apple Inc.
The unexpected move was as astonishing to watchers at a time when Apple iphone is witnessing a decline in global sales figure and the operation was experiencing a southward movement in China which until lately was one of the best growth markets. The investment might have followed one of Mr. Warren Buffet’s wise sayings, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”.
According to Wall Street Journal, Mr. Buffett’s position on Apple was revealed through its “13F filing with the Securities and Exchange Commission, a quarterly requirement for investors managing more than $100 million. The report indicates the number of shares held and the value of each stake at the end of the quarter, so it isn’t clear if Mr. Buffett’s firm has continued buying the stock since the quarter ended”
While Analysts are trying hard to rationalise Buffett’s decision as smartphone sales are getting to their diminishing returns. An interesting comment on Wall Street Journal said “I know Buffett does know much about technology, but I’m sure he can see that smartphone penetration is nearing 90%.”
However, the news of the development at NASDAQ where Apple is listed brought about a lift for the shares of Apple which gained USD 1 billion.
Apple is a value investment, Mr. Buffett was said to have reasoned. Apple’s stock is cheap, according to two measures used by Buffett. The brand having done over $130 US dollars according to its 5-year chart, buying up the shares at slightly above $90 at the time of transaction based on Mr. Buffett’s believe in fair price, is very fair. Looking at the indices, there is certainly enoumous head room for the equity to travel northwards all things being equal.
Accordingly,the gadget maker’s stock jumped 3.7% on Monday after Berkshire Hathaway’s stake was announced, paring a decline in the past year to 27%.
According to findings, in late April, Apple reported its first-ever decline in iPhone sales and a deep slump in China, once its fastest growth market.
Anticipating Apple’s troubles, billionaire investors Carl Icahn and David Tepper unloaded their Apple shares. Apple’s stock closed at $90.52 on Friday, trading for only 10.9 times the consensus 2016 earnings estimate among analysts polled by FactSet. A year ago, the stock was trading at 14.4 times.
In December, experts considered which companies might be able to continue handing outsized returns to investors based on returns on invested capital (ROIC) and the likelihood that the companies would continue to produce goods and services that people really want or need. (FactSet defines ROIC as earnings divided by the sum of the carrying value of a company’s common stock, preferred stock, long-term debt and capitalized lease obligations.)
Return on equity (ROE) is also a useful figure for stock investors, because it represents their portion of a company’s performance. But ROIC estimates management’s efficiency in allocating all types of money.
Apple’s return on invested capital for its fiscal second quarter was 27.5%. That was down from 31.2% a year earlier. Among the 228 companies in the S&P 1500’s technology sector for which this information is available from FactSet, Apple ranked 13th for the most recent quarter, which isn’t bad for a company that some people say is in its death throes. Remember that any quarter can greatly skew a company’s ROIC because of one-time events that distort earnings, experts rationalize.
As the most successful business investor in the world, it is left to be seen how the Warren’s magic wand impacts on the fortune of Apple.
Captions:
1. Apple’s 5-year chart
2. Mr. Warren Buffett, CEO, Beckshire Hathaway
Additional report from MarketWatch.com {fcomments}
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