Why Does Buffett Want A Bite of a Rotting Apple Inc. (AAPL)?

Warren Buffett

Apple Inc. ’s investor profile changed dramatically on Monday with the news that Warren Buffett loaded up on Apple’s stock while other investors like Scion Asset Management view Apple as rotting. On Monday, Apple shares traded up, and inched up a little more in after-hours trading to around $109.90.

New kind of investors emerging

On Monday, the last day to report second-quarter changes, other institutional investment funds also reported changes in their Apple holdings via SEC filings. The funds showed a new kind of investors i.e. someone that prefers slower growth firms with huge piles of cash and dividend payouts, rather than higher risk investments and high-growth, says a report from Market Watch.

Apple Inc. (NASDAQ:AAPL) Warren BuffettOther investment managers offloading Apple’s stock included David Einhorn’s Greenlight Capital, which reduced its stake by 16%; George Soros’s hedge fund Soros Asset Management and Tiger Global Management. A few months back, Carl Icahn – a well-known activist investor – unloaded his Apple stake due to growth concerns.

Scion, which is also based in Cupertino, unloaded its entire 75,000-share stake in the iPhone maker, and loaded up Alphabet – the parent firm for internet search engine and search giant Google. Scion bought 15,000 shares in Alphabet.

Apple enjoys Buffett’s trust

In contrast, Buffett added to the firm’s stake in Apple Inc. by 55%, from 9.81m to 15.23m shares. Also, the firm removed some of its shares in Wal-Mart Stores. Often, Buffett’s strategy involves buying consumer staple stocks and stable, long-term firms that will be in the market for years. This makes his move an endorsement of Apple’s long-term viability.  Also, it confirms that the tech giant is indeed a value stock, and thus, fits into this strategy so well.

Previously, the second-in-command at Berkshire – Charlie Munger –  said, “The whole world admires the achievements of Apple. On the other hand, you could hardly think of another business that is more un-Berkshire-like than Apple.”

Apple stock pays a steady and consistent cash dividend, a $2.03 a share in fiscal 2015, with slower growth prospects than its younger competitors in the technology sector. So far this year, Apple’s stock has gained 4%, while the Dow Jones Industrial Average has gained 7%.

For the Q2, the iPhone maker reported better-than-anticipated earnings. But, saw a second consecutive year-over-year decline in the iPhone sales after years of hyper profits from the iPhone, which made the tech giant the most valuable brand in the world. However, investors, including Buffett, have high expectations for the upcoming version of the iPhone.

Now the big question is – Will Apple Inc. turn again to big growth after the new iPhone emerges later next month or further down the line? If this happens, it would leave the high-growth investors unhappy and show the long-term wisdom of “Wizard of Omaha” again.

At 9.31 am EDT, Apple shares were up 0.40% at $109.93.

Disclaimer: The above should not be considered or construed as individualized or specific investment advice. Do your own research and consult a professional, if necessary, before making investment decisions.

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    Aman is MBA (Finance) with an experience on both marketing and Finance side. He has work as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, playing PC games and cricket.

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