PA ANALYSIS: Buffett’s bite into Apple highlights stock picker’s dilemma

Added 16th May 2016

When Warren Buffett buys a stock people take notice.

PA ANALYSIS: Buffett’s bite into Apple highlights stock picker’s dilemma

This is partly because the size of Berkshire Hathaway means that for it to move any kind of investment needle, the quantum of money changing hands has to be pretty sizeable. But, it is also because over the past 50 years, he has made some rather astute picks.

This is part of the reason why his decision to invest over $1bn in Apple made headlines around the world. The other is that Buffett has famously tended to shy away from technology companies, which he says are often difficult to value.

That the stock is down almost twenty percent since last month’s announcement of its first quarterly fall in revenue in 13 years would certainly have helped the decision, but it has also left those investors on the sidelines with a quandary – what does Buffet know that I don’t?

There is no doubt that the tech giant has seen growth slow in recent quarters and worries remain that it is still without the next ‘must-have’ product that can do for current earnings what the iPhone has been doing since 2007, albeit with diminishing returns year on year. All of which is why there are worries about the longer term prospects for the firm.

But, as the FT reported on Monday while Credit Suisse analyst Kulbinder Garcha, said in a note to investors last week that a potential 20% cut in iPhone production from a year ago was “clearly disappointing”. “He left intact his prediction of a 12% bounce in iPhone sales next year — along with a share price target more than 60 per cent above its current level.”

"given how highly valued Apple already is, trying to put a number on its long term growth is even more challenging."

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About Author

Geoff Candy

Group digital editor

Geoff Candy joined Portfolio Adviser as News Editor in May 2014. He has been a financial journalist and broadcaster since 2005 and, in that time has worked in both South Africa and the Netherlands, covering everything from high street retailers and construction companies to mining and insurance.



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