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Warren Buffett Thinks Apple Is Too Expensive

By Evan Niu, CFA - Updated Apr 10, 2019 at 10:00AM

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That doesn't mean the Oracle of Omaha is selling, though.

It's not every day that a prominent investor makes the case that Apple (AAPL 1.62%) shares are too expensive, considering the fact that the Mac maker's shares have long traded at a discount to the broader market. Apple is currently trading at 14.3 times earnings, compared to the S&P 500's 21.5 earnings multiple, for instance.

But when that prominent investor is Warren Buffett, the market pays attention.

Exterior of Apple Piazza Liberty store in Milan, Italy

Image source: Apple.

Not buying or selling

In an interview with CNBC this morning, Buffett suggested that Apple is too expensive at current prices for him to be interested in picking up more shares. However, that doesn't mean that the Oracle of Omaha necessarily thinks shares are overvalued or that he's interested in selling some of Berkshire Hathaway's (BRK.A 1.69%) (BRK.B 1.64%) Apple position.

"Apple, I don't see myself selling -- the lower it goes, the better I like it, obviously," Buffett told the outlet. Curiously, Berkshire didn't buy any shares in the fourth quarter even as Apple suffered a relentless pullback, losing 30% of its value over the course of three months. "It's really not back to where -- it may have very briefly got there," Buffett said, referring to a valuation at which he would consider picking up more shares. "If it were cheaper, we'd be buying it. We aren't buying it here."

Check out the latest Apple earnings call transcript.

In fact, Berkshire actually sold roughly 2.9 million shares during the fourth quarter, but Buffett clarified that one of his lieutenants, Todd Combs or Ted Weschler, sold shares within one of their portfolios, likely in order to free up cash to buy another stock. Buffett has never sold a single Apple share in the portfolio that he manages.

Chart showing Berkshire's Apple position

Data source: SEC filings. Chart by author.

Apple has bounced back in 2019, even after starting the year with a major guidance revision that saw the company acknowledge several significant challenges in the core iPhone business. The company had also dramatically reduced its share repurchase activity in the fourth quarter, in part due to its revenue shortfall relative to its prior outlook.

Chart showing Apple share repurchases

Data source: Apple. Chart by author.

When asked if he was concerned about this deceleration, Buffett shrugged off any concerns. The famed investor pointed to Apple's "net cash neutral" goal, whereby the company has vowed to return enough capital over time to make its cash position roughly equal to its debt position. Buffett continued:

They should be at 4 billion shares, probably, in maybe three years. And so our 5% would become something over 6% at that point, and I like that prospect. And then we might buy some ourselves, who knows, it depends on the price.

Buffett has highlighted the accretive benefits of Apple's buybacks on numerous occasions, where his stake in the company slowly creeps higher even if Berkshire were to stop buying shares. For reference, Apple had a little over 4.7 billion shares outstanding as of mid-January.

"But [Apple] will buy a lot more stock if it's cheaper than if it's higher," Buffett concluded. "It's just simple math, we're better if in the next three years Apple is cheaper."

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