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Another Look at Apple

The reign of Tim Cook at apple has been extraordinary with the company’s valuation growing 5x larger on his watch. Deservedly, there has been little criticism of the cash returned through stock buybacks (~$340 Billion since 2012). Whether the stock has now run, this year, to an excess valuation or not, is a question investors might wish to entertain by looking the actions of another legendary titan, Warren Buffett, and his holdings at Berkshire Hathaway.

Berkshire Hathaway has a market capitalization of $525 billion, with holdings in Apple equal to about 20% of that valuation. Years ago, Buffet suggested valuing Berkshire separately from the non-core holdings of the investment portfolio.  These non-core holdings of cash and securities total around $400 billion. The core Berkshire businesses in insurance, energy, and railroads are valued at the remaining $125 billion.

The core operating units are estimated to earn about $20 billion this year, implying a Price to Equity ratio of about 6. What is interesting, to us, in asking the question whether Berkshire is cheap or not, with an entirely hedgeable holding of Apple, investors are forced to answer the question on Apple’s valuation.

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  • Applied Finance, a thought leader in valuation and portfolio construction, is a true “value” investment management company.  Unlike the majority of firms today that focus on low multiples to define “value”, we define value as identifying companies trading below their intrinsic value.  Our Valuation Driven™ approach forms the foundation of our investment decisions...more


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