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2021-11-25

If Only Berkshire Hathaway Had Listened To Us, And Why It's Time To Exit Apple

Summary Our original recommendation for Berkshire Hathaway to buy Apple was predicated partially on

If Only Berkshire Hathaway Had Listened To Us, And Why It's Time To Exit Apple

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{"i18n":{"language":"zh_CN"},"data":{"magic":2,"id":877067798,"tweetId":"877067798","gmtCreate":1637845492653,"gmtModify":1637845492781,"author":{"id":3577352301253695,"idStr":"3577352301253695","authorId":3577352301253695,"authorIdStr":"3577352301253695","name":"D199991D","avatar":"https://static.tigerbbs.com/49e24e0e3faeb8d389ad5d2db8a0e240","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":15,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body>Like</body></html>","htmlText":"<html><head></head><body>Like</body></html>","text":"Like","highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/877067798","repostId":1105943125,"repostType":4,"repost":{"id":"1105943125","pubTimestamp":1637829564,"share":"https://www.laohu8.com/m/news/1105943125?lang=&edition=full","pubTime":"2021-11-25 16:39","market":"us","language":"en","title":"If Only Berkshire Hathaway Had Listened To Us, And Why It's Time To Exit Apple","url":"https://stock-news.laohu8.com/highlight/detail?id=1105943125","media":"seekingalpha","summary":"Summary\n\nOur original recommendation for Berkshire Hathaway to buy Apple was predicated partially on","content":"Summary\n<ul>\n <li>Our original recommendation for Berkshire Hathaway to buy Apple was predicated partially on our opinion that the company was undervalued.</li>\n <li>At this point, even with the tax expenses of selling, we feel the valuation has hit a point where Berkshire Hathaway should be selling.</li>\n <li>Berkshire Hathaway has a cash problem that's not to be trivialized, however, that doesn't justify holding onto overvalued assets.</li>\n <li>The company can use its cash to make significant additional investments in other businesses where it's growing.</li>\n</ul>\nJust over three years ago, we wrote an article discussing how Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B)should utilize its massive cash pile to acquire Apple(NASDAQ:AAPL). As we'll see throughout this article, while that trade would have panned out well, it's time for Berkshire Hathaway to exit its massive Apple investment.\nThe Acquisition\nOur original recommendation for the acquisition price with premium was a $1.23 trillion acquisition. Since then, Apple's market capitalization has more than doubled to $2.6 trillion. That's on the basis of substantial strength during COVID-19, where the company's FCF went from almost $65 billion to more than $90 billion.\nNew product lines for the business are growing well and it can be expected to continue growing going forward. Our pessimistic acquisition time assumption was Apple's FCF would stay constant at $65 billion while debt was paid out, however, this new FCF would have helped greatly accelerate the debt pay down for the company.\nBerkshire Hathaway's market capitalization, with the expansion in value, would be 3x as large. The company would have $865 billion in debt and have earned almost $150 billion in FCF in the most recent year. The giant would be a valuable long-term investment.\nApple Buffett Investment\nApple's Buffett investment has been arguably the best investment he's ever made.\nWarren Buffett's Apple&nbsp;investment has cost him roughly $40 billion. As Apple hits all-time highs, the most recent valuation of Apple's stake is almost $150 billion, implying paper profits of more than $100 billion. The peak capital gains tax rate is roughly 20%, implying ~$22 billion in taxes for the profits that the portfolio has seen so far.\nThat means that if he were to sell the investment, he'd turn $40 billion of cash into $125 billion of cash. That'd take Berkshire Hathaway's total cash position to roughly $260 billion.\nApple Valuation\nOur thesis for selling Apple is based on the company's recent massive multiple expansion.\n<img src=\"https://static.tigerbbs.com/dc5459716333b52cbca613111fcee56e\" tg-width=\"1844\" tg-height=\"564\" width=\"100%\" height=\"auto\">Apple P/E Ratio - MacroTrends\nA significant part of Apple's returns over the past five years have been the company's massive multiple expansion. The company's PE ratio has gone from just over 10 to almost 30. That 3x expansion means that the company's PE yield is just over 3%. It's worth noting it's been expanding EPS and aggressively buying back shares supporting EPS.\nHowever, the takeaway here is that multiple expansion can't be expected to continue forever and the law of large numbers exists. That means that Apple's upcoming five-year returns can be expected to not match with the past five-year returns. As Apple becomes bigger and bigger, it becomes more and more a vehicle for the S&amp;P 500 with individual company risk.\nOur Recommendation\nOur recommendation is that Berkshire Hathaway should sell Apple. For normal investors who hold Apple in their individual portfolios, we recommend the same. The reason is threefold.\n1. Apple's size means that continuing to provide market-beating returns is unlikely.\n2. The company's majority of share price performance has been multiple expansion, which can't be guaranteed to continue.\n3. Apple has enjoyed a peer-leading industry position, however, historically in tech, that's extremely difficult to maintain.\nBerkshire Hathaway will be left with a massive pile of cash and there are several ways we can see the company deploying it. For note, that $260 billion initial post tax cash will be almost half of its market capitalization. In our view, we can see several different ways that the company can utilize this cash to maximize shareholder rewards.\n1. Simply invest in the S&amp;P 500. It has a 0.7% higher dividend yield than Apple meaning rolling the $150 billion cash into that would add more than $1 billion in additional dividend for the company. Berkshire Hathaway has discussed how beating the S&amp;P 500 is difficult, and this is a simple solution to a complex problem.\n2. Buybacks. The remainder of Berkshire Hathaway's portfolio is incredibly strong and generates massive FCF. The company has been buying back stock&nbsp;to the tune of roughly $20 billion annualized. It can accelerate that, enabling the value in the rest of its portfolio to be much more magnified. Buying back a significant amount at market value is tough, but it could buy back a reasonable amount.\n3. Acquisitions. There are a few industries that Berkshire Hathaway has been willing to touch in the existing market. Energy,such as the recent almost $10 billion Dominion acquisition, has been one of them. There's plenty of larger companies in the energy markets, and Berkshire Hathaway could make a stab for a larger one towards a $100 billion valuation.\nAny of these paths, or some combination, in our opinion, could help Berkshire Hathaway drive more substantial shareholder rewards.\nWhy Discuss\nA classic question for all Seeking Alpha articles, but why are we discussing Berkshire Hathaway portfolio recommendations with you? What's the actionable advice?\nThe first is that we believe, for the same reasons, Apple investors should sell their current investments in Apple. The company is a great company, no doubt about it, however, that doesn't make it a great investment, especially at the current valuation. The law of large numbers limits upside, but as an individual company, there's still substantial downside.\nThe second is that Berkshire Hathaway investors should pay close attention to how the company treats its Apple stake as well. The investment now makes up almost 25% of the company's portfolio. That means leaving it invested in Apple, which we expect will underperform, can present a drag on the rest of the company's portfolio and hurt its value as an investment.\nAll of this, and what happens with the remainder of the company's cash position, is something we recommend investors pay close attention to.\nThesis Risk\nThe risk to our thesis is that Apple is focused on consistent growth and the company has performed well recently. That's especially true given new projects Apple is focused on,like recent news about the Apple Car. There's a chance, with a limit of the law of large numbers, Apple can for at least some period of time continue outperforming the market.\nIt's also worth noting that Berkshire Hathaway will need to, because of the 20% tax rate, find a way to reinvest at slightly higher returns.\nConclusion\nBerkshire Hathaway's massive Apple investment is now almost 25% of its valuation as a company. Even by historical norms with other companies, that's incredibly high in a single business. That single business has seen those returns primarily through multiple expansion (at the P/E of 10, the $40 billion investment would be $50 billion versus $150 billion).\nOur view is that Berkshire Hathaway should eat the tax expense and grab the cash. In our view, there are numerous things the company can do over the coming years to achieve higher returns than its Apple investment would. Whether the company does those things is important because underperformance of Apple could drag the rest of its portfolio.","source":"seekingalpha","collect":0,"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>If Only Berkshire Hathaway Had Listened To Us, And Why It's Time To Exit Apple</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\">\nIf Only Berkshire Hathaway Had Listened To Us, And Why It's Time To Exit Apple\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-11-25 16:39 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4471860-if-only-buffett-had-listened-to-us-and-why-its-time-to-exit-apple>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nOur original recommendation for Berkshire Hathaway to buy Apple was predicated partially on our opinion that the company was undervalued.\nAt this point, even with the tax expenses of selling,...\n\n<a href=\"https://seekingalpha.com/article/4471860-if-only-buffett-had-listened-to-us-and-why-its-time-to-exit-apple\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"AAPL":"苹果"},"source_url":"https://seekingalpha.com/article/4471860-if-only-buffett-had-listened-to-us-and-why-its-time-to-exit-apple","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1105943125","content_text":"Summary\n\nOur original recommendation for Berkshire Hathaway to buy Apple was predicated partially on our opinion that the company was undervalued.\nAt this point, even with the tax expenses of selling, we feel the valuation has hit a point where Berkshire Hathaway should be selling.\nBerkshire Hathaway has a cash problem that's not to be trivialized, however, that doesn't justify holding onto overvalued assets.\nThe company can use its cash to make significant additional investments in other businesses where it's growing.\n\nJust over three years ago, we wrote an article discussing how Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B)should utilize its massive cash pile to acquire Apple(NASDAQ:AAPL). As we'll see throughout this article, while that trade would have panned out well, it's time for Berkshire Hathaway to exit its massive Apple investment.\nThe Acquisition\nOur original recommendation for the acquisition price with premium was a $1.23 trillion acquisition. Since then, Apple's market capitalization has more than doubled to $2.6 trillion. That's on the basis of substantial strength during COVID-19, where the company's FCF went from almost $65 billion to more than $90 billion.\nNew product lines for the business are growing well and it can be expected to continue growing going forward. Our pessimistic acquisition time assumption was Apple's FCF would stay constant at $65 billion while debt was paid out, however, this new FCF would have helped greatly accelerate the debt pay down for the company.\nBerkshire Hathaway's market capitalization, with the expansion in value, would be 3x as large. The company would have $865 billion in debt and have earned almost $150 billion in FCF in the most recent year. The giant would be a valuable long-term investment.\nApple Buffett Investment\nApple's Buffett investment has been arguably the best investment he's ever made.\nWarren Buffett's Apple investment has cost him roughly $40 billion. As Apple hits all-time highs, the most recent valuation of Apple's stake is almost $150 billion, implying paper profits of more than $100 billion. The peak capital gains tax rate is roughly 20%, implying ~$22 billion in taxes for the profits that the portfolio has seen so far.\nThat means that if he were to sell the investment, he'd turn $40 billion of cash into $125 billion of cash. That'd take Berkshire Hathaway's total cash position to roughly $260 billion.\nApple Valuation\nOur thesis for selling Apple is based on the company's recent massive multiple expansion.\nApple P/E Ratio - MacroTrends\nA significant part of Apple's returns over the past five years have been the company's massive multiple expansion. The company's PE ratio has gone from just over 10 to almost 30. That 3x expansion means that the company's PE yield is just over 3%. It's worth noting it's been expanding EPS and aggressively buying back shares supporting EPS.\nHowever, the takeaway here is that multiple expansion can't be expected to continue forever and the law of large numbers exists. That means that Apple's upcoming five-year returns can be expected to not match with the past five-year returns. As Apple becomes bigger and bigger, it becomes more and more a vehicle for the S&P 500 with individual company risk.\nOur Recommendation\nOur recommendation is that Berkshire Hathaway should sell Apple. For normal investors who hold Apple in their individual portfolios, we recommend the same. The reason is threefold.\n1. Apple's size means that continuing to provide market-beating returns is unlikely.\n2. The company's majority of share price performance has been multiple expansion, which can't be guaranteed to continue.\n3. Apple has enjoyed a peer-leading industry position, however, historically in tech, that's extremely difficult to maintain.\nBerkshire Hathaway will be left with a massive pile of cash and there are several ways we can see the company deploying it. For note, that $260 billion initial post tax cash will be almost half of its market capitalization. In our view, we can see several different ways that the company can utilize this cash to maximize shareholder rewards.\n1. Simply invest in the S&P 500. It has a 0.7% higher dividend yield than Apple meaning rolling the $150 billion cash into that would add more than $1 billion in additional dividend for the company. Berkshire Hathaway has discussed how beating the S&P 500 is difficult, and this is a simple solution to a complex problem.\n2. Buybacks. The remainder of Berkshire Hathaway's portfolio is incredibly strong and generates massive FCF. The company has been buying back stock to the tune of roughly $20 billion annualized. It can accelerate that, enabling the value in the rest of its portfolio to be much more magnified. Buying back a significant amount at market value is tough, but it could buy back a reasonable amount.\n3. Acquisitions. There are a few industries that Berkshire Hathaway has been willing to touch in the existing market. Energy,such as the recent almost $10 billion Dominion acquisition, has been one of them. There's plenty of larger companies in the energy markets, and Berkshire Hathaway could make a stab for a larger one towards a $100 billion valuation.\nAny of these paths, or some combination, in our opinion, could help Berkshire Hathaway drive more substantial shareholder rewards.\nWhy Discuss\nA classic question for all Seeking Alpha articles, but why are we discussing Berkshire Hathaway portfolio recommendations with you? What's the actionable advice?\nThe first is that we believe, for the same reasons, Apple investors should sell their current investments in Apple. The company is a great company, no doubt about it, however, that doesn't make it a great investment, especially at the current valuation. The law of large numbers limits upside, but as an individual company, there's still substantial downside.\nThe second is that Berkshire Hathaway investors should pay close attention to how the company treats its Apple stake as well. The investment now makes up almost 25% of the company's portfolio. That means leaving it invested in Apple, which we expect will underperform, can present a drag on the rest of the company's portfolio and hurt its value as an investment.\nAll of this, and what happens with the remainder of the company's cash position, is something we recommend investors pay close attention to.\nThesis Risk\nThe risk to our thesis is that Apple is focused on consistent growth and the company has performed well recently. That's especially true given new projects Apple is focused on,like recent news about the Apple Car. There's a chance, with a limit of the law of large numbers, Apple can for at least some period of time continue outperforming the market.\nIt's also worth noting that Berkshire Hathaway will need to, because of the 20% tax rate, find a way to reinvest at slightly higher returns.\nConclusion\nBerkshire Hathaway's massive Apple investment is now almost 25% of its valuation as a company. Even by historical norms with other companies, that's incredibly high in a single business. That single business has seen those returns primarily through multiple expansion (at the P/E of 10, the $40 billion investment would be $50 billion versus $150 billion).\nOur view is that Berkshire Hathaway should eat the tax expense and grab the cash. In our view, there are numerous things the company can do over the coming years to achieve higher returns than its Apple investment would. Whether the company does those things is important because underperformance of Apple could drag the rest of its portfolio.","news_type":1},"isVote":1,"tweetType":1,"viewCount":776,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"CN","currentLanguage":"CN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":4,"xxTargetLangEnum":"ZH_CN"},"commentList":[],"hasMoreComment":false,"orderType":2}