Warren Buffett (Trades, Portfolio) and his former chief investment officer, Lou Simpson (Trades, Portfolio), think alike on three companies: Apple Inc. (AAPL, Financial), Liberty Global PLC (LBTYK, Financial) and Charter Communications Inc. (CHTR, Financial).
Background
Buffett met Simpson in 1996 when he was CEO of Geico’s capital operations. Impressed by Simpson’s track record, the “Sage of Omaha” hired Simpson as chief investment officer for Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) subsidiary Geico.
Buffett praised Simpson’s performance several times from 2004 to 2010 in his shareholder letters. For example, the Berkshire CEO said in 2004 that Simpson “is a cinch to be inducted into the investment Hall of Fame.” The SQ Advisors fund manager averaged an annual gain of 20.3% from 1980 to 2004, outperforming the Standard & Poor’s 500 index benchmark by approximately 6.8%. Buffett mentioned in his 2006 shareholder letter that although Simpson would “magnificently” fill in as Berkshire’s next CEO, the conglomerate “needs a different answer” for the long term as Simpson is only six years Buffett’s junior.
When he retired from Geico in 2010, Simpson said in an interview with The Chicago Tribune that his investing strategy consists of several steps, including perusing all company filings, talking to competitors and finding people “more knowledgeable about the business” than he is.
Apple
Buffett and Simpson have a combined weighting of 28.18% in Apple. The Berkshire CEO owns 239,567,633 shares while the SQ Advisors fund manager owns 1,209,003 shares.
GuruFocus ranks Apple’s profitability 8 out of 10 as the company has profit margins that outperform over 95% of global competitors. The Cupertino, California-based tech giant increased revenues approximately 13.5% per year over the past three years, a rate that ranks higher than 82% of global consumer electronics companies.
Ken Fisher (Trades, Portfolio) added 466,888 shares of Apple during the second quarter. The company’s stock averaged $181.31 during the quarter; it is trading approximately $10 higher as of 1:30 p.m. Friday.
Liberty Global
Buffett and Simpson have a combined weighting of 10.05% in Liberty Global, a U.K.-based holding company engaged in the telecommunication, broadband services and cable industries. Buffett owns 7,346,968 shares while Simpson owns 9,573,196 shares.
Liberty Global’s profitability ranks 6 out of 10: although operating margins outperform 64% of global competitors, the company’s gross profit margins have contracted approximately 0.90% per year over the past five years. Other red flags include a three-year long-term debt increase of $59.8 million and a three-year revenue decline rate of 5.90%.
Charter Communications
Buffett and Simpson have a combined weighting of 7.98% in Charter Communications. Simpson owns 624,609 shares while Buffett owns 8,222,873 shares.
Charter provides television, internet and telephone services to 5.5 million subscribers in 29 states. The company’s financial strength ranks 4 out of 10 on several factors, including a weak Altman Z-score of 0.77 and a debt-to-EBITDA ratio of 4.41, slightly higher than Joel Tillinghast’s safe threshold of 4.
Despite low financial strength, Charter’s profitability ranks 7 out of 10 as net profit margins and returns on equity are near 10-year highs and outperform over 89% of global competitors. FPA Crescent Fund manager Steven Romick (Trades, Portfolio) invested in 779,191 shares during the second quarter as the company offers good growth potential.
Disclosure: No positions.
