Warren Buffett Bites Into Apple

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

Warren Buffett

Shares of Apple rose 3.7 percent on the news, closing up $3.36 at $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 was announced amid 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.

"It makes sense because it's a consumer company disguised as a technology company with a great business model, strong cash flow and a cheap valuation," said Jeff Matthews, author of books about Buffett and a principal at the Ram Partners LP hedge fund. "It's not a leap of faith."

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

The value of the stake has since fallen to about $921 million, even with Monday's gain. Berkshire's largest technology bet has been Buffett's roughly $12.1 billion stake in International Business Machines Corp, an investment now more than $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 shares of Berkshire since 1982 and Apple since 2003. "Apple is not getting credit for research and development it is doing behind the scenes."

Apple Inc. (AAPL) | FindTheCompany

MIXED VIEWS OF HEDGE FUNDS

The Apple investment was made by one of Buffett's two 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 $9 billion and usually make smaller wagers, while Buffett, 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 Corp for Berkshire in 2011.

In April, Apple said revenue for the quarter ended March 26 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 $1 billion investment in Chinese ride-hailing service Didi Chuxing.

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