Warren Buffett (Trades, Portfolio) and Ken Fisher (Trades, Portfolio), two investing titans who value securities using the price-sales ratio, think alike on Apple Inc. (AAPL, Financial). According to the aggregated portfolio, the two gurus have a combined holding of 24.20% in the Cupertino, California-based tech giant.
Brief discussion of the price-sales ratio
According to Fisher’s investment website, Fisher first described the price-sales valuation method in is 1984 best-seller “Super Stocks.” Fisher mentioned that in his view, the price-sales ratio gives a more accurate valuation for many stocks than other methods like the price-earnings ratio do. Legendary investor Peter Lynch underscored the drawback of the price-earnings valuation method for cyclical companies: such companies can have artificially low price-earnings ratios during peaks of business cycles.
Buffett expanded the concept of the price-sales ratio to the overall market. According to the Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO, the ratio of the Wilshire 5000 full-cap index to the U.S. gross domestic product is “probably the best single measure of where valuations stand at any given moment.” As of Friday, the Buffett indicator reached 146.2%, approximately 3% higher than its reading on June 6 and about 2% lower than its all-time high of 148.5%.
Apple
Buffett and Fisher have a combined weighting of 24.20% in tech giant Apple. Buffett’s 239,567,633 shares represent 21.27% of the portfolio while Fisher’s 12,159,643 shares represent the other 2.93%.
At market open, Apple traded around $191.08, close to a 10-year high and approximately $3.10 less than its 52-week high of $194.20. Although the company has consistent revenue growth and a strong Piotroski F-score of 7, Apple trades approximately $30 higher than its median price-sales value, suggesting moderate overvaluation. GuruFocus also warns that Apple’s price-book ratio of 7.44 is near a 10-year high of 7.98.
Other top holdings dominated by Buffett
Although Fisher also has positions in Wells Fargo & Co. (WFC, Financial), Bank of America Corp. (BAC, Financial), The Kraft Heinz Co. (KHC, Financial) and Coca-Cola Co. (KO, Financial), these positions only represent less than 0.05% of Fisher’s portfolio.
Buffett and Fisher have a combined weighting of 12.68% in Wells Fargo, the second-largest holding between the two. Buffett owns 456,513,244 shares of the San Francisco-based bank, which represents 12.66% of the combined portfolio.
Wells Fargo traded at an intraday low of $53.71 on second-quarter earnings results that underperformed bottom-line analyst estimates. The bank reported 89 cents in earnings per share, which reflected a 10-cent charge in discrete income tax expenses related to the U.S. Supreme Count decision South Dakota versus Wayfair. Revenues declined approximately $0.6 million from the prior-year quarter’s $22.2 billion; additionally, the results included $619 million of operating losses primarily related to non-litigation expenses from “previously disclosed matters.”
The bank still trades approximately $10 higher than its median price-sales value despite the price drop. GuruFocus ranks Wells Fargo’s financial strength 4 out of 10 as the company’s debt-to-equity ratio of 1.19 underperforms 83% of global competitors. The website also warns that the bank has increased its long-term debt over the past three years.
During the second quarter, FPA Crescent Fund manager Steven Romick (Trades, Portfolio) invested in 3,982,984 shares of Wells Fargo for an average price of $53.57.
See also
Table 1 summarizes the top five holdings of the combined portfolio between Buffett and Fisher.
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Table 1
GuruFocus’ “Most Broadly Held” portfolio returned 189.40% since its Dec. 30, 2005, inception, outperforming the Standard & Poor’s 500 index benchmark by approximately 67.17%. Apple, the second-top performer, gained 231.16% since the model portfolio invested 84 shares for $57.86 on Jan. 1, 2012. According to the website, the “Aggregated Portfolio of Gurus” investing strategy has outperformed the benchmark in 9 out of the past 10 years.
Disclosure: no positions.
