On Wednesday, Apple Inc. (AAPL, Financial), the top holding of Warren Buffett (Trades, Portfolio)'s Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial), reached an intraday high price of $468.09, propelling the Cupertino, California-based tech giant's market cap above $2 trillion.
Background
Known as the "Oracle of Omaha," Buffett studied under legendary value investor Benjamin Graham and then turned Berkshire from a small textile company into a conglomerate worth close to $500 billion. Buffett and co-manager Charlie Munger (Trades, Portfolio) seek companies with four key criteria: understandable business, favorable long-term prospects, competent management and attractive valuations.
Berkshire's bold bet on Apple
The Omaha, Nebraska-based conglomerate initiated a 9,811,747-share stake in Apple during the first quarter of 2016, with shares averaging $99.61. Buffett said in a May 2018 CNBC interview that his conglomerate purchased 74,233,671 shares during the first quarter of 2018, with shares averaging $172.19. CEO Tim Cook said in a statement that he is "thrilled" to have Berkshire as a shareholder, adding that Cook has "always been grateful for his insight and advice."
Berkshire kept purchasing shares in Apple throughout 2018, increasing the position to 252,478,779 shares as of Sept. 30, 2018. As of the second-quarter 2020 filing date, Berkshire owns 245,155,566 shares, dedicating 44.18% of its equity portfolio to the stake.
Buffett said in a Feb. 24 CNBC interview that Apple is "probably the best business I know in the world" and that his conglomerate has committed to Apple more than "any business except insurance and the railroad."
A transaction analysis using GuruFocus' My Portfolios feature computes a cumulative gain of over $81.83 billion on the investment, or approximately 222.20%. The stock has gained 58.24% in the year to date according to All-in-One Screener statistics, a Premium feature of GuruFocus.
Stock exhibits high quality but remains highly overvalued
GuruFocus ranks Apple's financial strength 6 out of 10: Even though interest coverage and debt ratios are outperforming just over 59% of global competitors, the company has a high Piotroski F-score of 7 and a strong Altman Z-score of 6.72.
Apple's profitability ranks 10 out of 10, driven by a 4.5-star business predictability rank and profit margins and returns outperforming over 96% of global competitors.
Despite high profitability, Apple's valuation ranks 1 out of 10 on several signs of overvaluation, including price-book and price-sales ratios near 10-year highs and underperforming over 89% of global competitors based on its current share price.
Apple's board of directors announced during the company's fiscal third-quarter earnings release a 4-for-1 stock split to make the stock more accessible to a broader range of investors. Other gurus that are cheering on Apple's milestone market level include Ken Fisher (Trades, Portfolio), Pioneer Investors and Spiros Segalas (Trades, Portfolio).
Fourteen GuruFocus users are buying shares in Apple, while eight users are considering buying shares according to our GuruFocus Baskets feature.
See also
Berkshire's top-four holdings as of the June-quarter filing date are Apple, Bank of America Corp. (BAC, Financial), Coca-Cola Co. (KO, Financial) and American Express Co. (AXP, Financial). The Kraft Heinz Co. (KHC, Financial) replaced Wells Fargo & Co. (WFC, Financial) in fifth place following the conglomerate's 26.49% position reduction in the San Francisco-based bank.
Disclosure: The author is long Apple.
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