Why Buffett Should Sell Berkshire's Apple Stake

Seeking Alpha2021-12-22

Summary Apple has been a strong buy when Berkshire made its first investment. Today, things are very different - instead of cheap and out of favor, AAPL is very expensive. Berkshire has shown that ...

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精彩评论

JonLucky
2021-12-22
JonLucky
Lengthy but well argued. But I wonder what Warren Buffet would actually do.
- JonLucky:
  ya
- Thinn:
  rich man game
KAHHUAT
2021-12-22
KAHHUAT
Latest
- rachhy:
  good
- KAHHUAT:
  Latest

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Today, things are very different - instead of cheap and out of favor, AAPL is very expensive.\nBerkshire has shown that ...</p>\n\n<a href=\"https://seekingalpha.com/article/4476181-why-buffett-should-sell-berkshires-apple-stake\">网页链接</a>\n\n</div>\n","source":null,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Why Buffett Should Sell Berkshire's Apple Stake</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nWhy Buffett Should Sell Berkshire's Apple Stake\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-12-22 13:56 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4476181-why-buffett-should-sell-berkshires-apple-stake><strong>Seeking Alpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nApple has been a strong buy when Berkshire made its first investment. Today, things are very different - instead of cheap and out of favor, AAPL is very expensive.\nBerkshire has shown that ...</p>\n\n<a href=\"https://seekingalpha.com/article/4476181-why-buffett-should-sell-berkshires-apple-stake\">网页链接</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"AAPL","symbol_name":"苹果","start_time":0,"source_url":"https://seekingalpha.com/article/4476181-why-buffett-should-sell-berkshires-apple-stake","article_id":"1101145405","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=1101145405","pubTimestamp":1640152602,"columns":[],"sourceInfo":null,"weMediaInfo":null,"summary":"Summary\n\nApple has been a strong buy when Berkshire made its first investment. Today, things are ver","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"AAPL":"苹果","BRK.A":"伯克希尔","BRK.B":"伯克希尔B"},"translate_title":"巴菲特为什么要出售伯克希尔的苹果股份","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AAPL":0.9,"BRK.A":0.9,"BRK.B":0.9},"content_text":"Summary\n\nApple has been a strong buy when Berkshire made its first investment. Today, things are very different - instead of cheap and out of favor, AAPL is very expensive.\nBerkshire has shown that they are willing to capitalize on low BRK valuations by buying back shares when they are undervalued.\nSelling overvalued AAPL and using the proceeds to buy undervalued BRK could generate significant shareholder value for Berkshire's investors, I believe.\n\nPaul Morigi/Getty Images Entertainment\nArticle Thesis\nApple's (AAPL) shares are pretty expensive, and the company is entering a period of lower growth if analysts are correct. This means that it could be an opportune time for investors to sell shares to lock in gain - this also holds true for Berkshire Hathaway (BRK.A) (BRK.B), which is a major shareholder. Berkshire could use the proceeds to ramp up its already healthy buybacks further, which would be immensely accretive at current valuations.\nWhy It Could Be Opportune To Lock In Gains In Apple\nLast week, I wrote a longer article on Apple and why I believe that shares are currently trading above fair value. The quick recap is that Apple is trading at the highest valuation in a long period of time, no matter whether we look at its earnings multiple, its EV to EBITDA ratio, or its cash flow yield. The EV/EBITDA multiple is most telling, I believe, as it accounts for changes in debt usage and in Apple's cash position over the years:\nData by YCharts\nAt easily more than twice the historical valuation, AAPL is pretty expensive. At the same time, Apple is entering a period of slower growth, according to the analyst community, since the iPhone and iPad lines are not generating significant business growth any longer, while the Apple Car is likely still years away. The combination of an above-average valuation and a below-average growth rate, combined with weaker tailwinds from buybacks (which are less effective at the current high valuation), means that Apple could be poised for underperformance going forward, which is why I believe that locking in gains could make a lot of sense.\nBerkshire's Apple Investment\nBerkshire Hathaway first started to buy into Apple in 2016. At that time, Apple was trading at a completely different valuation compared to today:\nData by YCharts\nShares traded for 10-14x net profits, and at 7-9x EBITDA - not at all comparable to the 30x net earnings multiple and 24x EBITDA multiple AAPL trades at today. In other words, Buffett has, as could be expected, identified Apple as a strong investment when it was very inexpensive - following his \"Value\" approach. Right now, however, Apple is far from a value pick and instead seems pretty pricey, especially when we account for its not very convincing near-term growth outlook - forecasted EPS growth over the next couple of years ranges from just 2%-8% (linked above).\nPer Berkshire's most recent 10-Q filing, the company held $128 billion worth of Apple stock on September 30:\nSource: BRK 10-Q\nApple's share price on that date was $142, from which we can infer that Berkshire held around 900 million shares of Apple at the end of the third quarter. Assuming that there were no sales and no buys since then, those same 900 million shares are worth around $154 billion at a current share price of $171 - at the recent peak of $182, the position had a value of $164 billion.\nWhat does Berkshire get out of that $154 billion investment right now? Based on Apple's dividend of $0.22 per share per quarter, Berkshire receives about $790 million a year in dividends - this sounds like quite a lot, but relative to the massive size of the investment, it's just a yield of ~0.5% - the same yield all other Apple shareholders get. On top of that, Berkshire also gets a portion of Apple's other profits, of course. Some of those are paid out via buybacks, which make for a theoretical pro-forma return of around $4.5 billion to Berkshire every year, based on Apple's trailing twelve-month buyback yield of 2.9% (per YCharts). Shareholder returns thus total a little more than $5 billion a year (Berkshire's portion), for a yield of slightly above 3% - still not too great, I believe. Of course, Apple can also generate profits that are not paid out to shareholders, but that are, instead, reinvested to grow the business, e.g. via R&D spending or capital expenditures. In recent years, however, that was not an especially large portion - with an earnings yield of just above 3%, based on estimates for the current fiscal year, and with buybacks and dividends totaling 3.4%, Apple isn't actually retaining any earnings right now.\nLooking at the shareholder return picture, or alternatively using the concept of \"look-through earnings\" - Berkshire's portion of Apple's profits - gets us to a relatively similar picture: Apple's earnings per share are forecasted at $5.70 during the current year - a 900 million share position thus generates theoretical profits of $5.1 billion for Apple. In both cases, whether we focus on actual shareholder returns or on the look-through profit concept, the return picture is comparable - Berkshire gets about $5 billion a year for a $150+ billion investment.\nThis does, I believe, not generate an adequate return on investment, especially when we consider that the value of Berkshire's Apple investment could easily drop by tens of billions of dollars if Apple's valuation ever reverted back towards historical norms. A 20x earnings multiple for Apple, which would still be above the 10-year median earnings multiple (16, per YCharts), would see shares drop to ~$115, which would result in $52 billion in equity losses for Berkshire's AAPL position relative to how the position is valued today.\nCreating More Value For Shareholders\nIf Apple is trading at a price that could justify locking in gains, this brings up an important question: What would Berkshire do with the proceeds if it were to sell its stake? I believe that there is a pretty good answer to that - they could use it to buy an excellent company trading at an inexpensive valuation. The company in question is one that management knows extremely well - it's Berkshire Hathaway.\nBerkshire Hathaway has been buying back its own shares at a considerable pace in recent quarters, which shows that management clearly likes the idea of buybacks, and that they deem BRK a good value at current prices - otherwise a great capital allocator, such as Warren Buffett, wouldn't spend billions on buybacks today:\nData by YCharts\nBerkshire has traded in the $280 to $300 range for more than half a year, and Berkshire has continued to spend billions of dollars on buybacks in that time frame, so it seems pretty obvious that Buffett sees Berkshire as an attractive value in that range. When we consider that Berkshire's book value has most likely risen in recent months, due to equity markets climbing and due to operating profits, BRK could be an even better deal today.\nLet's look at what selling the Apple stake and using the proceeds for buybacks could do for Berkshire and its shareholders. The Apple stake is worth $154 billion, and as established earlier, Berkshire generates about $5 billion a year from that. Berkshire's operating businesses generated about $6.5 billion during the most recent quarter, or $26 billion a year (assuming no future growth). Berkshire's equity portfolio, excluding Apple, was worth $183 billion at the end of the third quarter. The S&P 500(NYSEARCA:SPY) has risen by 6% since then, so let's assume that the equity portfolio, without the Apple stake, is worth around $190 billion today (4% growth to be conservative). Let's now look at two scenarios.\nIn the first scenario, the Apple investment is held and we also assume that other equity investments, as well as the cash position, are held. When we further assume that other equities are fairly valued, we can subtract those from Berkshire's current market capitalization to \"net them out\".\nIn that case, Berkshire, including its Apple stake, is valued at $311 billion today, once we adjust the $650 billion market capitalization for the $190 billion in non-Apple equities, and for the $149 billion in cash held at the end of the third quarter. Investors get $26 billion in operating earnings, and $5 billion in Apple earnings for that investment, which makes for a $31 billion total - Apple is thus, once we net out cash and non-Apple equities, trading at 10x current profits. In other words, investors get $13.70 in earnings per share from Apple in the form of operating profits and Apple earnings, and they get $150 per share in the form of cash and non-Apple equities held at Berkshire on top of that. Paying $288 for that seems like a pretty good deal, I believe.\nThings get way better in scenario 2, however, where Berkshire sells all of its 900 million shares in Apple and uses the proceeds to buy back $154 billion worth of BRK. This would reduce the share count by 535 million, from 2.26 billion to 1.73 billion. At $288 per share, Berkshire would then be valued at $497 billion. The company would still own $190 billion in non-Apple equities, and $149 billion in cash, but those would be distributed over a significantly lower share count of just 1.73 billion, which would lift the per-share value to $196. Berkshire would also still generate $26 billion in operating profits, but the $5 billion in Apple profits would have vanished. The $26 billion in operating profits, distributed over 1.73 billion shares, would total $15.03, however. We see that, if Berkshire were to sell all its Apple shares and use all of the proceeds to reduce its share count by 24%, its per-share value should rise dramatically. Not only would the value of its cash and non-Apple investments rise from $150 per share to $196 per share, but its operating earnings (including the look-through Apple earnings in scenario 1) would also rise from $13.70 to $15.03. If Apple were to trade at a similar operating earnings multiple of around 10 in scenario 2, its per share value would climb from $288 in scenario 1 to $346 in scenario 2 ($196 of non-Apple equities and cash, and $150 for its operating businesses), all else equal. If we assume that a 10x earnings multiple for Berkshire's operating businesses is too low, and that they should be valued at a higher multiple, the impact is even larger.\nTakeaway\nApple has been a great investment for Berkshire, but that does not mean that holding shares is the best idea. When Berkshire bought into AAPL, Apple was very inexpensive and out of favor. Today, Apple is pretty expensive, which makes it a way worse investment. At the same time, Berkshire itself is pretty inexpensive today, once we account for the Apple stake, other equity positions, and the large cash pile.\nBerkshire has shown that they are willing to take advantage of the low valuation BRK trades at by buying back shares at a rapid pace. Monetizing the overvalued Apple stake in order to ramp up buybacks further could create significant value for Berkshire's shareholders, and it would, at the same time, reduce risks from both a valuation perspective and since management would use the money to invest into the company it knows best - Berkshire.\nSelling/monetizing the currently overvalued Apple stake and using the proceeds to buy up undervalued Berkshire shares would thus be a good idea that should generate considerable shareholder value, I believe.\nThis article was written by Jonathan Weber.","kind":"news","is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":691833665,"gmtCreate":1640161849613,"gmtModify":1640161850623,"author":{"id":"3573703375513385","authorId":"3573703375513385","name":"JonLucky","avatar":"https://static.tigerbbs.com/15afb66e92e4e4d6d1a8e9b7854e9d5e","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3573703375513385","authorIdStr":"3573703375513385"},"htmlText":"Lengthy but well argued. But I wonder what Warren Buffet would actually do.","listText":"Lengthy but well argued. But I wonder what Warren Buffet would actually do.","text":"Lengthy but well argued. But I wonder what Warren Buffet would actually do.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":2,"repostSize":0,"link":"https://laohu8.com/post/691833665","repostId":1101145405,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":7086972,"gmtCreate":1640233344485,"gmtModify":1640233344519,"authorId":3573703375513385,"author":{"id":3573703375513385,"idStr":"3573703375513385","authorId":3573703375513385,"name":"JonLucky","avatar":"https://static.tigerbbs.com/15afb66e92e4e4d6d1a8e9b7854e9d5e","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":691833665,"type":1,"supId":7079783,"prevId":0,"content":"<u>ya</u>","text":"<u>ya</u>","html":"<u>ya</u>"},{"id":7079783,"gmtCreate":1640190376670,"gmtModify":1640190376774,"authorId":3573644992811813,"author":{"id":3573644992811813,"idStr":"3573644992811813","authorId":3573644992811813,"name":"Thinn","avatar":"https://static.tigerbbs.com/d9266b5e702b2469d0dced7310ef80e3","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":691833665,"type":1,"supId":0,"prevId":0,"content":"rich man <u>game</u>","text":"rich man <u>game</u>","html":"rich man <u>game</u>"}],"langContent":"CN"},{"id":691145321,"gmtCreate":1640154997822,"gmtModify":1640155013281,"author":{"id":"3581548947231431","authorId":"3581548947231431","name":"KAHHUAT","avatar":"https://static.tigerbbs.com/0142df644dd666ed7544324b3fa02898","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3581548947231431","authorIdStr":"3581548947231431"},"htmlText":"Latest","listText":"Latest","text":"Latest","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":2,"repostSize":0,"link":"https://laohu8.com/post/691145321","repostId":1101145405,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":7075234,"gmtCreate":1640156627120,"gmtModify":1640156627217,"authorId":3569563989023705,"author":{"id":3569563989023705,"idStr":"3569563989023705","authorId":3569563989023705,"name":"rachhy","avatar":"https://static.tigerbbs.com/ac0d9804d3e4fa9220d45c8b779c2019","vip":1,"crmLevel":5,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":691145321,"type":1,"supId":7075103,"prevId":0,"content":"good","text":"good","html":"good"},{"id":7075103,"gmtCreate":1640155003045,"gmtModify":1640155003139,"authorId":3581548947231431,"author":{"id":3581548947231431,"idStr":"3581548947231431","authorId":3581548947231431,"name":"KAHHUAT","avatar":"https://static.tigerbbs.com/0142df644dd666ed7544324b3fa02898","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":691145321,"type":1,"supId":0,"prevId":0,"content":"<u>Latest</u>","text":"<u>Latest</u>","html":"<u>Latest</u>"}],"langContent":"CN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":27,"commentSize":2,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":false,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"laohu8","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1101145405"}