Berkshire Hathaway: Apple Is a Shining Star in 2019

• Berkshire Hathaway stock has underperformed the S&P 500 this year. However, Apple, which is the company’s largest holding, is outperforming the markets.
• Warren Buffett, Berkshire Hathaway’s chairman, has been optimistic about Apple. Buffet has generally stayed away from tech companies. However, he sees Apple as a consumer product company.

Berkshire Hathaway’s (BRK-B) (BRK.B) portfolio has usually been overweight on consumer and financial sector companies. Currently, Apple is the company’s biggest holding. According to Berkshire Hathaway’s second-quarter 13F, the company holds around a 5.5% stake in Apple (AAPL). Buffett has admired Apple on several occasions. The company first took a stake in Apple in 2016. Since then, Berkshire Hathaway has gradually increased its stake. In the fourth quarter of 2018, the company sold some Apple shares. However, a different investment manager sold the shares—not Buffett. Now, Buffett’s bet on Apple is paying off.

Looking at Berkshire Hathaway’s top ten holdings, Apple has been the second-best performing stock this year based on year-to-date price action. Based on last week’s closing prices, Apple has risen 51.5% this year. Moody’s has gained 54.1% during this period. However, Berkshire Hathaway’s total holdings in Moody’s is less than one-tenth of its stake in Apple. Based on current market prices, Berkshire Hathaway’s stake in Apple is valued at almost $59 billion. Notably, Apple stock made a 52-week high on October 11. The stock has reclaimed $1 trillion market capitalization. In the fourth quarter of 2018, Apple’s market capitalization fell below $700 billion amid the broader market sell-off.

Among Berkshire Hathaway’s top ten holdings, Wells Fargo and Kraft Heinz (KHC) have underperformed the S&P 500 (SPY) by a wide margin this year. While Wells Fargo has risen around 10.0%, Kraft Heinz has fallen 34.3%. Due to Apple’s splendid returns, Berkshire Hathaway’s portfolio of publicly-traded securities has done reasonably well this year. However, the stock has underperformed the S&P 500 this year. In our view, the underperformance could mainly be due to the mammoth cash that the company is holding. An analogy could be drawn with a fund that’s sitting on cash in rising markets. Notably, US equity markets are near their all-time highs due to optimism about a US-China trade deal.

When Apple stock fell in the fourth quarter of 2018, many investors expected Buffett to add more shares. However, as the fourth-quarter 13F showed, Berkshire Hathaway didn’t add more Apple shares. In contrast, the firm sold some shares. A different investment manager in the company sold the Apple shares. Berkshire Hathaway already holds a massive stake in Apple. The investment firm’s market capitalization is approximately $510 billion. The stake in Apple stock is valued at around $59 billion based on current market prices. The value is based on the assumption that Berkshire Hathaway hasn’t added or sold Apple shares since June 30.

Buffett said that he might buy more Apple shares if prices fall. Currently, Apple stock has risen above the levels when Buffett expressed his views. His faith in Apple has paid off this year. He sees Apple as a consumer products company and not a technology company. In general, Buffett has stayed away from technology companies. So, should Buffett shed his aversion to tech companies? Read Should Buffett and Berkshire Warn Up to Tech Stocks? to learn more.