Within the past week, there have been two major Apple (NASDAQ:AAPL) trades in the news.
First we’ve got Al Gore, former Vice President, climate awareness advocate, and Apple board member conspicuously selling $37 Million in shares.
Then we’ve got Warren Buffett’s Berkshire Hathaway (NYSE:BRKb) doubling down on earlier Apple holdings, increasing its AAPL stake to $18 Billion.
Clearly (or perhaps not so clearly), Gore and Buffett have different expectations of Apple. Let’s try to figure out what’s going on.
Apple’s Apparent Identity Crisis
Many analysts have pegged Apple as a company in the midst of deep identity crisis. The rise and reign of Steve Jobs introduced pioneering products and a clear brand vision, but despite its continued earth-scorching success, no one really knows what Apple stands for anymore. What is the next frontier for this American technology giant?
If that metric is too ephemeral for you, the numbers paint an equally murky picture for Apple’s future.
Apple’s earnings growth rate has been stagnant in recent years. We’re talking 2% growth since 2012, right along with inflation. Profits fell 16% between 2015 and 2016. What’s more, 100+% of profits were distributed to shareholders as dividends, meaning Apple is not re-investing this money in the company’s future.
Not that Apple needs annual profits to be a big spender; the company has more than $200 in cash reserves. The question is, what’s Apple going to spend that money on.
The Difference a Week Makes
Al Gore unloaded his shares shortly before February 28’s annual shareholders meeting. Coincidence?
At this meeting, Tim Cook made some statements which give us more of a hint about Apple’s upcoming priorities.
Cook reportedly indicated that Apple is ready to spend $50 billion to increase their US manufacturing stake. Already, 70% of Apple’s entire workforce (2 million) is American. Bringing further manufacturing into the US would be costly, but would be in keeping with incentives and general threats coming from the Trump White House.
Furthermore, Apple supplier Foxconn Tech (TW:2354) is reportedly investing $7 Billion in new US manufacturing facilities, possibly to be located in Mesa, Arizona. This begs the question: what will they be manufacturing?
According to Cook, Apple is developing new products to create new revenue sources. The iPhone is still a force of global domination (or as Buffett says, a “sticky product”). But it’s also a mature product that was introduced 10 years ago.
Apple has had more duds than hits in recent years (Apple Watch, anyone?). But even if a new hit product does not emerge from Apple factories, this might not be a dealbreaker for someone like Warren Buffett.
Why Own AAPL?
While no longer the most inspired or inspiring business on the planet, Apple has a lot going for it (to put it mildly). AAPL has matured into a real value stock, after years as America’s darling growth company. As such, Apple’s ongoing iPhone success and incredible liquid wealth give make it ideal for an investor like Buffett.
Apple offers shareholders excellent dividends. With so much cash in reserve, there is no reason for this to change for many years to come. Like many American brands, Apple also has long term growth potential internationally. It may have saturated industrialized nations to a large extent, but that leaves well more than half of the world with populations hungry for 21st century consumer tech – the most emblematic example of which is the iPhone.
Buffett always buys and holds. He sees long term growth prospects and great dividends. So do I. Apple has surged in the past few days, but I see no reason not to buy.
Al Gore might disagree. But then again, maybe he cashed out because he needed to renovate his bathroom. In any case, he sold just days before a massive uptick in AAPL value.
I’m with Buffett on this one. When it comes to AAPL, buy it, hold it, love it.
