26 Dec

Apple Could Be on Buffett’s Radar after Crash

WRITTEN BY Mohit Oberoi, CFA

Apple

Warren Buffett started buying Apple (AAPL) in 2016 and added more Apple stock in the third quarter. Apple is currently Berkshire Hathaway’s (BRK-B) biggest holding in a portfolio that’s dominated by banking and financials. Bank of America and Wells Fargo are the other leading stocks in Berkshire’s portfolio.

Apple Could Be on Buffett’s Radar after Crash

Price action

Apple stock has tumbled this year, and based on December 24 closing prices, Apple’s market capitalization fell below $700 billion. The company’s market capitalization has fallen to the lowest level since February 2017. Earlier this year, Apple’s market capitalization surged past $1 trillion. Amazon’s (AMZN) market capitalization also briefly topped $1 trillion. Over the last couple of months, the two companies along with Microsoft (MSFT) have been in the race for the biggest company tag.

To be sure, Buffett is a long-term investor, so short-term volatility should not drive investment decisions (QQQ). However, there have been concerns over iPhone sales after several component suppliers flagged growth risks. As China is a leading market for Apple, the company is also exposed to China’s slowdown.

China risks

Reportedly, several Chinese companies are subsidizing employees’ purchase of Huawei phones. We should remember that Huawei’s CFO was arrested in Canada on charges of dodging US sanctions on Iran. To be sure, this isn’t the first incident where reports have suggested that Chinese consumers were boycotting a foreign company. Earlier, Chinese consumers apparently shunned products and avoided travel to regions that have been engaged in a political rift with the country.

While Apple’s valuation has started looking attractive to some analysts, it will be interesting to see whether Buffett adds more Apple stock after the recent sell-off. Another opportunity for Berkshire could be to look at outright acquisitions like its Precision Castparts acquisition in 2015.

Meanwhile, Buffett could decide to wait a little longer and continue to hold cash. We’ll discuss implications in the next article.

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