The Strategist

Why is Warren Buffett so confident in Apple?

09/06/2018 - 15:21

Warren Buffett has not changed his attitude to the world's largest company. A week before the new Apple even, the billionaire told that his fund Berkshire Hathaway has increased its share in Apple once again. Why is Buffett so confident and does the market agree with him?

Fortune Live Media
Fortune Live Media
A month ago, Apple stormed a new hill. The company was the first of public companies to receive an estimate of a trillion dollars. This achievement has also broken a kind of psychological barrier for investors: shortly after Apple's billion-dollar capitalization, the Internet retailer Amazon broke the same record. The ability to pave the way in the market is one of qualities for which a company is valued by investors. Billionaire Warren Buffett (number 3 in the global list of Forbes, the capital of $ 84 billion) is no exception.
In an interview with CNBC on his 88th birthday, Buffett said that he bought Apple shares at the end of June, without specifying amount of the purchase. Earlier in the second quarter of 2018, his Berkshire Hathaway fund, increased its stake in Apple by 5%.

"We bought some more," Buffett said, answering the question whether the fund had increased the stake in Apple since the last financial report. The billionaire believes that from the investment point of view, Apple looks attracting thanks to its strong brand and ecosystem, rather than short-term financial results.

"I do not focus on sales in the next quarter or year. I look at hundreds, hundreds, hundreds of millions of people who actually live in their iPhones," says Buffett.

The investor believes that the iPhone is extremely undervalued and is worth more than what Apple wants for it. This is an interesting statement, given the criticism that the company suffered last year after presentation of the iPhone X with a value of $ 999. However, further comments showed a difference in how Buffett and the average user view the iPhone’s price.

"I have an airplane that costs me $ 1 million a year or so. If I used the iPhone - I use the iPad a lot - so if I used the iPhone like all my friends, I would prefer to abandon the airplane than it," Buffett said. "You can hold a party that will cost as much [$ 1000], and here it is [iPhone] and all that it does for you - it's just incredible."

An average user is unlikely to agree with such a comparison. However, if you take the statement a little further from the rhetoric of a billionaire, there is one right thing: now, the iPhone is not a luxury but a necessity for millions of users. And forming regular need and creating products to meet it means something that investors are ready to pay for.

Obviously, Buffett’s statements became music for Apple's ears, especially given the time of their utterance. The company is holding another event on September 12, and unless Apple has decided to radically change the format, there is a new iPhone waiting for the audience.

The main novelty can be a larger (and, most likely, more expensive) version of last year's flagship, iPhone XS Plus. In addition, Apple expects the updated iPhone XS, although, judging by other S-versions, the device will differ only in evolutionary changes. Among other predictable novelties are a more affordable model of iPhone 9 and new Apple Watch Series 4. All iPhone models are expected to support wireless charging and Face ID, but the iPhone 9 will be slightly different with its more modest camera and battery.

On the eve of the event and against the backdrop of Buffett's action, Apple's shares went up. Following the trading on Tuesday, September 4, the share price was $ 228.36. For the month, they grew by 9.2%. The company's market cap is estimated at $ 1.1 trillion.

Of course, everyone understands that Buffett is a person interested in Apple's success. According to FactSet, Berkshire Hathaway is the second largest shareholder of Apple after Vanguard Group. The fund’s share, which as of March 31 was 4.96%, has been steadily increasing over the past two years. However, if Apple is confronted with questions about prices of devices after the announcement, then Buffett's support will become a certain reference point in communicating with investors.

The billionaire’s position in relation to Apple and iPhone is supported by at least one major analytical company. Experts at Canaccord Genuity raised the target price of Apple shares from $ 220 to $ 250 and retained their recommendation to "buy", predicting that the new iPhone will be quite a strong incentive for users to upgrade their devices.