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What Warren Buffett Thinks Apple Should Do

Even though Warren Buffett is notoriously averse to tech stocks, he still has some advice for Apple (NASDAQ: AAPL  ) . The Oracle was on CNBC this morning discussing a wide range of topics, including the Mac maker's current predicament. When asked about shareholder pressure to boost the dividend, Buffett recalled the conversation he had with Steve Jobs years ago.

When Steve called me, I said, "Is your stock cheap?" He said, "Yes." I said, "Do you have more cash than you need?" He said, "A little." [laughs] I said, "Then buy back your stock." He didn't.

Of course, this conversation took place way back in 2010, and since then Apple has gotten cheaper relative to its earnings power and it has even more cash. Apple started off 2010 with $40 billion in cash, and the company now has nearly $100 billion more.

AAPL P/E Ratio TTM Chart

AAPL P/E Ratio TTM data by YCharts.

When it comes to investor pressure to raise the dividend or do a stock split or other initiatives that shareholders are calling for, Buffett believes that the best course of action is to ignore everyone and just focus on long-term value creation and eventually shares "will respond." Buffett recalls plenty of times when outsiders would criticize Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) and offer unsolicited advice on what the company should do.

Although David Einhorn's Greenlight Capital holds a significant 1.3 million shares in Apple, the investor is among those that Buffett thinks should be ignored. Instead of being distracted by short-term movements, Apple should just run the business in a way that will deliver the most value over the next five to 10 years. CEO Tim Cook agrees with this sentiment, as at the annual shareholder meeting last month he urged fellow shareholders to focus on the long-term and reiterated that Apple remains intent on creating the best products.

Buffett does think that Apple has done a good job in building value, while acknowledging that the company does have too much cash right now. Berkshire Hathaway shares have dropped 50% on four separate occasions over the years, and Buffett said each time the best thing to do was simply to buy. When the A-class shares fell from $90,000 to about $40,000, he expressed an interest in buying. Berkshire never got around to it, but Buffett points out that it's a pretty good deal to be able to buy a dollar bill for $0.80 whenever the opportunity presents itself.

Is such an opportunity presenting itself with Apple right now? While he didn't say so explicitly, Buffett's comments certainly imply that he thinks so.

There is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

Read/Post Comments (5) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 05, 2013, at 3:16 AM, jconboy0226 wrote:

    I think that Apple investors need to take the following into account:

    1.) A large portion of Apple's profit is smart phones, and competition from Android and particularly Samsung's implementation there of is making it far more difficult to charge the price premiums that they were able to get away with as the more innovative first mover.

    2.) Real incomes are largely stagnant, which means a larger group of individuals no longer looks for the "designer" brand. Apple has heavily relied on a designer/sleek marketability aspect of their products. This becomes tougher as people need to budget more heavily towards basic necessities.

    3.) Innovation in smart phones and tablets helped the company sky rocket, but what is their next move? Unfortunately I can't think of any at the moment.

    4.) As this article correctly points out, "What are they going to do with all that cash." It isn't beneficial to share holders to hoard cash if there is no useful means for it. Apple needs to make a decision on how much cash they realistically need on hand for R&D or some other long term capital expenditure.

  • Report this Comment On March 05, 2013, at 7:42 AM, musiciscool wrote:

    check out the toy department of your local Target or Walmart. What other phone maker has an assortment of toddler cases for their phone? For crying out loud, they even make a case for an iphone that has a teether on it!!! Also, how many useful apps does iphone have? The fact that you can transfer all of them to your new phone, and share them with your family's other devices means nobody is going to chase down a Samsung phone just because it is new shiny and has better specs. The next iphone will have better specs than the next Samsung, they will hopscotch back and forth. The only people who keep pushing this "Samsung" issue are Fandroids who have hated Apple from the beginning. Bottom line is, unless the next iphone totally blows, most everyone that has an iphone now will upgrade to the new one. Not many will jump ship to Google's spyware phone.

  • Report this Comment On March 05, 2013, at 8:19 AM, afamiii wrote:

    Buy low, sell high. It such a fundamental tenent of successful investing. CEOs like many individual investors seem to have too much difficulty doing this.

    Buy when it is selling low compared to intrinsic value, sell when it is high compared to intrinsic value. End of story.

    Looks like not even the 'great' Steve Jobs can do this. If you have the emotional control to do it, you can make a fortune.

  • Report this Comment On March 05, 2013, at 8:32 AM, jdmeck wrote:

    Who the hell cares what he thinks. He doesn't own the stock and said he doesn't understand the business. Why would you listen to anything he has to say about Apple?

  • Report this Comment On March 05, 2013, at 1:13 PM, XXF wrote:

    If I believed Apple could buy back stock and not redistribute them to management and board members I would be all for it, alas those charged with governance of Apple are far more interested in protecting the interests of management than the shareholders.

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