The ‘Warren Buffett Effect’ Strikes Again
When Warren Buffett speaks, investors listen. At least, that seems to be the pattern in recent years. Often called the “Oracle of Omaha,” Buffett seems to know, over the long haul, which companies have the best futures. And this time, he has obviously chosen Apple.
On May 16, Buffett revealed that Berkshire Hathaway has a $1.2 billion stake in Apple, probably surprising some investors who have been dumping their shares of late. The effect has been that Apple stock has seen a 9 percent increase, now trading at over $100 a share for the first time in well over a month.
— 9to5Mac (@9to5mac) May 27, 2016
Apple’s Recent Woes
Apple had a rough 2016 second quarter. First, it reported that its sales had dropped by 18 percent compared to the same quarter of 2015, a first in the past 13 years. This resulted in some sell-off of stock.
And then, of course, was the decision by billionaire activist Carl Icahn, to sell his entire stake in Apple at the end of April. Icahn had owned 45.8 million shares, and that sell-off sent shock waves through other investors, who began to bail out and take their profits. Following Icahn’s announcement, Apple Stock declined 6 percent.
In dumping his stock, Icahn told CNBC it was all about Apple’s relationship with China, which he sees as shaky. As he told CNBC at the time,
“The real thing I worry about is the relationship…and I don’t know much about that relationship…if China was steady, I would probably go back into it.”
The worries about Apple’s future in China are real. Chinese regulators are putting tighter restrictions on Apple, and the economic downturn in China will probably stall sales in the near term.
Some Good News And Some Mystery
While Warren Buffett usually looks to a company’s long-term future, there is good short-term news from Apple, too.
The company has increased its production targets for its new iPhone 7. While originally estimated at about 65 million phones, the target is now between 72 and 78 million. Investors see this as a good sign, as it is the largest production target for an iPhone in 2 years. The iPhone 7 is due to hit the retail market in September.
Then, there is this mysterious buy of Apple stock. According to CNBC’s Jon Najarian during his Halftime Report on Thursday, someone placed an order on the Midwest Stock Exchange for 7.5 million shares of Apple. That was soon followed by another order for 5 million shares, all at the same price of $99.16. According to Najarian, as reported by Benzinga, the purchase was impressive.
“That’s an awful lot of billions that someone just plunked down.”
Najarian’s “take” on the orders is that a hedge fund is obviously bullish on Apple, but which fund that is remains unknown.
— MacRumors.com (@MacRumors) May 27, 2016
Possible Move Into India?
It is also possible that Warren Buffet, in his long-range outlook for investing, is thinking of Apple’s market potential in India.
Even though consumer sales have stalled in China, there is a huge consumer market in India, and Apple may very well have plans for that market. Indian officials, however, have their own requirements. For Apple to open multiple stores in India, it would have to set up production in India that would equal 30 percent of its sales.
Given the attitude of Chinese officials toward Apple in recent months, pulling some production from China might be a good move.
What Might Warren Buffett Know?
Buffett does not plunge into a company without a great deal of research and analysis. In fact, he has traditionally been a skeptic of Apple. This recent revelation of Berkshire-Hathaway’s move into Apple has many wondering what he has discovered that others do not yet know.
[Photo by Paul Morigi/Getty Images]