Warren Buffett reveals billion-dollar Apple stake

Warren Buffett's Berkshire Hathaway revealed a more than US$1 billion stake in Apple in a rare foray into the technology sector, which the billionaire has largely shunned apart from a poorly performing investment in IBM.

Shares of Apple rose 3.7 percent on the Berkshire imprimatur, closing up US$3.36 at US$93.88. Berkshire made its investment in the first quarter, before the iPhone maker in April reported its first quarterly revenue decline in 13 years.

The investment came despite an increasing view among investors that Apple may deserve a lower valuation because its heady growth days may be over. However, Apple has a strong balance sheet and management, attributes long favored by Berkshire.

"We've considered this a value stock since 2013, so it's not surprising that Berkshire sees it the same way," said Steve Chiavarone, a portfolio manager at Federated Investors in New York. "It's a value stock that has the potential for a big growth."

In a regulatory filing detailing most of its stock holdings, Berkshire said it held 9.81 million Apple shares worth US$1.07 billion as of 31 March.

The value has since fallen to about US$921 million, despite Monday's gain. Berkshire's largest technology bet has been Buffett's roughly US$12.1 billion stake in IBM, itself now more than US$1.6 billion in the red.

Apple stock "is stunningly cheap, and it has a massive pile of cash", said Steve Wallman, founder of Wallman Investment Counsel in Middleton, Wisconsin, who has owned Berkshire since 1982 and Apple since 2003. "Apple is not getting credit for research and development it is doing behind the scenes."

An Apple spokeswoman did not respond to requests for comment.

Apple falls

The Apple investment was made by one of Buffett's stockpicking deputies, Todd Combs and Ted Weschler, his assistant said in an email to The Wall Street Journal.

Combs and Weschler, who ran hedge funds before joining Berkshire, each invest about US$9 billion and usually make smaller wagers, while their boss, known as the Oracle of Omaha, makes bigger investments such as IBM.

Investors said Combs may have been the Apple buyer. He invested in chipmaker Intel for Berkshire in 2011.

Buffett's assistant did not respond to a request for comment.

In April, Apple said quarterly revenue declined as an increasingly saturated smartphone market hurt iPhone sales, which fell for the first time.

Chief executive Tim Cook is looking to develop other technologies for the Cupertino, California-based company, and last week unveiled a US$1 billion investment in Chinese ride-hailing service Didi Chuxing.

Apple's market value last week dipped below that of Google parent Alphabet, even though Apple generates roughly triple the revenue and profit. Before Monday, shares of Apple had fallen by one-third from their April 2015 peak.

Chiavarone, from Federated Investors, said he invests in Apple stock, and that its price-earnings multiple is lower than his other technology sector investments.

Berkshire's investment also puts it at odds with investors that have retrenched from Apple.

Last month, billionaire Carl Icahn said he sold his Apple stake on concern about the company's relationship with China.

David Tepper's Appaloosa LP sold its stake in the first quarter, while Ray Dalio's Bridgewater Associates cut its stake by two-thirds. Leon Cooperman's Omega Advisors also shed its Apple stake, a person familiar with the matter said.

Reporting by Jonathan Stempel in New York; Additional reporting by Jennifer Ablan and David Randall in New York and Ross Kerber in Boston; Editing by Lisa Von Ahn and Steve Orlofsky