Would Warren Buffett Ever Buy Apple?

In the following video, Fool senior technology analyst Eric Bleeker looks at a question that could seem ludicrous given Berkshire Hathaway's traditional aversion to technology: Would Warren Buffett ever buy Apple?

In spite of Buffett's long stance that technology is either too complicated or lacks the right long-term competitive advantages for his investing style, recent evidence points to his having more interest in the space than he lets on. 

For example, Berkshire took a position in Intel  (NASDAQ: INTC  ) back in 2011. The deal was small enough that it was almost assuredly from potential Buffett successor Todd Combs. Also, in a surprising move that eschewed its traditional long-term focus, Berkshire sold the position within a year's time for healthy gains. Yet the fact that Berkshire would invest in something that competes on the most cutting edge of technology -- the non-stop march of semiconductor technologies -- was intriguing. 

Much larger than Intel was Buffett's buy of IBM  (NYSE: IBM  ) . It's a company that's as blue-chip as they come in technology and has a tremendous model that increasingly layers software and services on top its hardware portfolio, yet there's no denying it competes in some very fast-moving and advanced markets. IBM isn't a small bet, either. It's Buffett's third largest public holding. The $14 billion Berkshire owns in IBM is only slightly smaller than its fabled Coca-Cola holding. 

Finally we come to Buffett and right-hand man Charlie Munger's description of Google  (NASDAQ: GOOGL  ) back in March 2009:

"Google has a huge new moat. In fact I've probably never seen such a wide moat," said Munger. "I don't know how to take [the moat] away from them," said Buffett." "Their moat is filled with sharks!" Munger added.

Google does have a fabulous competitive position, yet even with Buffett's willingness to invest in great companies at fair prices, its current P/E of 26 is probably a bit too steep to see the Oracle sniffing around Google's shares. 

So we have ample evidence that Buffett could very well be overly modest and cagey in his deference to technology investing. With Apple now within a modest one-day drop away from being in the 5% cheapest companies in the S&P 500, could Apple possibly be a stock on Buffett's radar?

As Eric notes, it has some qualities Buffett likes. Its $137 billion in cash is beyond a fortress-like balance sheet, the company has a tremendous global brand, and its cash flow continues to outpace earnings growth. Buffett's statements on CNBC last week also showed he doesn't find the company terribly expensive, suggesting Tim Cook use the company's cash to rebuy shares. 

In the end, the biggest strike against Apple would be the perception that it's a hardware play prone to being dragged down by competitive forces in the coming years. Were Buffett to take any interest in even putting the sights of his elephant gun on Apple's shares, it'd probably have to come with his believing that mobile operating systems provide a larger user lock-in than many of his value peers would believe. 

As Eric notes, seeing Berkshire buy Apple might seem laughable to those who know of Buffett's long lack of a track record in tech. Yet 10 years ago, Buffett's purchase of IBM shares might have seemed laughable today as well. To see Eric's full thoughts, watch the following video.

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Read/Post Comments (7) | Recommend This Article (12)

Comments from our Foolish Readers

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  • Report this Comment On March 09, 2013, at 11:04 PM, Seanickson wrote:

    He won't buy it but not because its tech but instead because its unpredictable. To pay 2.5 times sales for a company you have to be confident that a company can maintain its high margins and its tough to do that as revenue growth slows and competition is willing to accept low margins

  • Report this Comment On March 09, 2013, at 11:14 PM, thunderboltnova wrote:

    Please don't sell your Apple stock. The CEO Cook promises he'll turn around the company. He'll even buy back stock and give you hefty dividends. I just bet the farm he'll turn it around.

  • Report this Comment On March 10, 2013, at 6:26 AM, H3D wrote:

    "In spite of Buffett's long stance that technology is either too complicated or lacks the right long-term competitive advantages"

    Buffett made a clear statement last year to put this to bed. Why do you discount his explanation?

    To paraphrase, Buffett said that he invests in businesses that he understands better than the market does gives him competitive advantage. He said that people should invest in businesses that they understand.

    So if Buffett does not understand the technology business then its the wrong business for HIM to invest in.

    But if you understand the technology business then Buffett rule would say that it's the right area got you to invest in.

    Please go to the trouble of reading what he has said, before putting words in his mouth.

  • Report this Comment On March 10, 2013, at 9:39 AM, alboy5 wrote:

    Iaapl retrotech at exorbitant prices. Seriously 400 for a cheap ipad, maybe 75 to 100 would be a price not gauging the consumer.

  • Report this Comment On March 10, 2013, at 9:39 PM, thunderboltnova wrote:

    Warren says he loves Apple right here and it's a super bargain. He just bought Heinz though so he needs to raise some cash. He says he'll probably dump all his shares in Amex to do so.

  • Report this Comment On March 10, 2013, at 10:41 PM, techy46 wrote:

    Would Warren Buffett Ever Buy Apple? Yes, but you don't know what the price per share would have to be.

  • Report this Comment On March 12, 2013, at 12:01 AM, JamesHoJuice wrote:

    If Apple drops to $250. Then from a balance sheet focus perspective, it could be a Buffet candidate.

    At such prices, i bet my cards it will never happen.

    Apple is a true consumer technology horse, and is way down the supply chain for technology.

    As a market matures and becomes growingly competitive, it becomes more and more beneficial to invest upstream, because of expanding customer base and economies of scale.

    Hence IBM and Intel, one heavily involved in consulting services & the cloud while the latter providing chips to the consumer tech product makers.

    So will Buffet buy Apple? Maybe. But definitely not at such prices. I'd buy an option on this if I could.

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