Warren Buffett (Twitter / Warren Buffett, pixabay)
Warren Buffett has claimed that he now considers technology giant Apple to be one of the four pillars that drives Berkshire Hathaway, the investment house he founded and led for the past 50 years.
In his annual letter to shareholders published today (Saturday), the investment legend wrote Apple under the headline “Our four giants” and even called the company “second in importance” after Berkshire’s insurance cluster, thanks to its CEO. “Tim Cook, CEO” “Apple’s brilliant, correctly treats users of Apple products as its first love, but all the other districts also benefit from Tim’s administrative contact,” the letter said.
The Oracle of Omaha has made it clear that it is a fan of Cook’s repurchase strategy, and how it gives Berkshire increased cost of every dollar of the iPhone maker’s profits without the investor having to lift a finger.
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“Apple – our giant runner-up by its market value at the end of the year – is a different kind of holding. Here, our ownership is only 5.55%, compared to 5.39% a year earlier,” Buffett wrote in the letter and explained. “This growth sounds like little potatoes. But keep in mind that all 0.1% of Apple’s profits in 2021 totaled $ 100 million. We did not spend money on Berkshire to get our joining. Apple’s repeat purchases did the job.”
Berkshire began buying shares of Apple in 2016 under the influence of Buffett’s investment advisers Todd Combs and Ted Wechsler. By mid-2018, the conglomerate had amassed a 5% stake in the iPhone maker, a share that cost $ 36 billion. Today, Apple’s investment is worth more than $ 160 billion, with the company holding 40% of Berkshire’s stock.
“It’s important to understand that only Apple’s dividends are counted in Berkshire’s earnings reports according to U.S. accounting rules (that is, including expenses related to employee and management options) – and last year, Apple paid us $ 785 million of them. However, our ‘share’ of Apple’s profits was 5.6. “A billion dollars. A lot of what the company kept was used to repurchase Apple shares, an act we welcome,” Buffett said.
Berkshire is the largest shareholder in Apple, outside of index providers and listed funds. The conglomerate has received regular dividends from the technology giant over the years, averaging about $ 775 million a year.
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Based on data submitted to the U.S. Securities and Exchange Commission, Apple accounts for somewhere around 40% of total holdings in Berkshire Hathaway shares. This is an incredible expression of confidence on the part of one of the biggest investors in history, especially since the Oracle from Omaha has traditionally been a little disgusted with technology stocks.
Apple’s businesses are becoming increasingly complex and carry some of the hallmarks of the tech sector that have deterred Buffett and Berkshire from making some large investments in the wider sector. But the company also has many of the features that Buffett loves in business. Crucially, Apple has a strong moat and is without a doubt the most powerful brand in the field of mobile computing, and it seems to be well placed on the way to further highs.
In addition to the company’s amazing profit margins in the field of smartphones and tablets, the company maintains a significant market share in the global cellular market. And let’s not forget the company’s evolving services sector (like music, TV and storage services). In the third quarter, Apple reported revenue of $ 81.4 billion, up 36% from revenue in the same quarter last year. In total, the company made a net profit of $ 21.7 billion, which was almost double the amount generated in the previous year.
Apple has used the power of its mobile hardware ecosystem to build a leading software and services business in the category. Its customer base has no competition in the field of mobile software. People who use the company’s iOS mobile operating system spend much more on average than users with mobile devices powered by Alphabet’s Android operating system. It is likely that Apple will be able to continue to leverage this strength to drive sales and revenue growth for its App Store and subscription services.
The company has already experienced 172% share growth in the last three years and almost 1,000% in the last 10 years. But Apple is a business built to beat the future, and the stock continues to have potential for gains.
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