Apple Is Dirt Cheap, While Berkshire Cleans Up

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

As the following graph shows, today's markets are not behaving as one might have expected on day one of the government shutdown. Stocks indexes are up -- the S&P 500 (SNPINDEX: ^GSPC  ) and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI  ) have gained 0.5% and 0.14%, respectively, as of 3:20 p.m. EDT -- while gold and volatility are falling.

This morning, billionaire investor Carl Icahn updated the Twittersphere on his campaign at Apple (NASDAQ: AAPL  ) with the following tweet:

Readers of this column will know that Icahn had publicly endorsed the notion of a $150 billion buyback on Sept. 11, when he made the case for Apple shares being "extremely cheap."

However, it was the turn for another legendary investor [some might say "notorious"] to make the same case today. Appearing on CNBC, Legg Mason's Bill Miller said:

The biggest no-brainer in the history of the earth -- that's what Apple is to me right now. It just makes no sense for Apple to trade where it is: Seven times enterprise value to free cash flow. 14%, in essence, free cash flow yield on enterprise value. 10% simple free cash flow yield. If Apple was a junk bond, it would trade 40% higher -- junk yields are 6 [percent]. Junk bonds are a contract, they have a claim, but they have a claim on, typically, a bad balance sheet.

Someone is listening; Apple's stock is outperforming the broad market today, with a 1.9% gain late in trading.

According to the amended terms of the warrant agreement Berkshire Hathaway (NYSE: BRK-B  ) struck with new Dow component Goldman Sachs (NYSE: GS  ) , the conglomerate will now own approximately 13.1 million shares of the investment bank. The precise number of shares is based on the average closing price of Goldman shares during the 10 trading days up to Oct. 1. That figure -- equivalent to a 2.8% ownership stake worth roughly $2.1 billion -- immediately vaults Berkshire to the rank of sixth-largest shareholder, based on the public ownership data from S&P Capital IQ for the end of June.

Not bad, considering Berkshire didn't spend a penny out of pocket for those shares, which were a sweetener on top of the 10% dividend it received on the Goldman preferred shares it invested in at the height of the credit crisis.

Warren Buffett wants you to be a better investor
Warren Buffett has made billions through his investing, and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.


Read/Post Comments (1) | Recommend This Article (4)

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 October 01, 2013, at 5:14 PM, dwilh51183 wrote:

    For those of you who do not know this, apple reduced their prices and offer affordable payment plans you can get an iphone 5 s 32 gig for only $32 a month with nothing down .what a deal!!

    and yes mr miller and icahn...AAPL STOCK SHOULD BE TRADING AT $900.00 A SHARE RIGHT NOW

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2663756, ~/Articles/ArticleHandler.aspx, 8/27/2014 11:25:37 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement