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Apple and KHC Save the Day for Buffett and Berkshire

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Berkshire Hathaway holds stakes in both Apple (AAPL) and Kraft Heinz (KHC). Berkshire Chair Warren Buffett has admired Apple on several occasions. However, he’s admitted to making a mistake on Kraft Heinz. Yesterday both these stocks gained after better-than-expected earnings releases.

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KHC, Apple gain

Berkshire Hathaway (BRK-B) (BRK.B) (BRK.A) is Kraft Heinz’s biggest shareholder and consolidates the company using the equity method. Apple is the largest holding in Berkshire’s portfolio of publicly traded securities. Buffett is known for his value investments. At the end of the second quarter, Berkshire was Apple’s second-largest shareholder. Kraft Heinz gained 13.4% in yesterday’s trading, while Apple gained 2.3%. Berkshire Hathaway closed down 0.31% yesterday.

Warren Buffett

Buffett has admired Apple’s products on several occasions. He sees Apple as a consumer company. He first took a stake in it in 2016. Meanwhile, earlier this year, in an interview with CNBC, Buffett admitted to making a mistake on Kraft Heinz. KHC has fallen sharply this year. Even with yesterday’s upward price action, KHC is down 21.6% so far in 2019. Apple, on the other hand, has been a shining star. The stock is up almost 60% this year based on yesterday’s closing price.

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Apple and Kraft Heinz

Kraft Heinz released its earnings yesterday before the market opened. Apple released its earnings after the market closed on October 30. Both companies posted better-than-expected earnings, and markets rewarded them for it. Given the pessimism surrounding Kraft Heinz, the stock spiked after its earnings beat. 3G Capital trimmed its stake in Kraft Heinz earlier this year. As mentioned, Buffett also admitted to making a mistake on the stock. However, so far Berkshire Hathaway has stayed put, neither increasing nor decreasing his stake. This is based on the company’s second-quarter 13F.

As for Apple, after gradually increasing his stake, Buffett didn’t buy any more shares after the third quarter of 2018. On the contrary, a different investment manager at Berkshire Hathaway actually sold some Apple shares in the fourth quarter of 2018.

Criticism of Buffett

Of late, Warren Buffett has received criticism over Berkshire’s underperformance. Notably, Berkshire’s returns have trailed the S&P 500’s (SPY) this year. Being a long-term value investor, Buffett might not be bothered by this short-term underperformance. However, Berkshire’s performance has sagged over the last decade. Furthermore, because current market valuations aren’t exactly tempting for value investors such as Buffett, Berkshire’s cash pile has swelled. A high cash pile in a rising market is further pressuring Berkshire’s performance.

A buyback is another option Buffett could use to deploy Berkshire’s cash. Read Should Warren Buffett Walk the Talk on Buybacks? for more analysis. Meanwhile, the spikes in Kraft Heinz and Apple should bring some solace to Berkshire investors for now. We’ll get more updates on Berkshire’s buybacks after the company releases its third-quarter earnings results. As for Berkshire’s third-quarter buying activity, we’ll have to wait for its 13F, which should be out around November 15.

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