No. of Recommendations: 17
Interesting read and thoughts from Chris Bloomstran on X:
“Berkshire Hathaway will release its Q3 10-Q tomorrow morning. As with last quarter, I fully expect to see a further MATERIAL reduction in its Apple investment. At 36x 2024 earnings, little revenue growth over the last two years, perhaps 6-7% prospective long-term growth on an enormous $400 billion revenue base, little room for expansion beyond a 26% net margin, and a demonstrated insensitivity in repurchasing shares of late ($95 billion purchased in FY 2024 alone, 80% of cash flow from operations) only chopping the position down makes sense, regardless of taxes. Berkshire sold 13% of its Apple shares in Q1 and further cut the position by a whopping 50% in the June quarter. Berkshire initially sold ~10% of the Apple position in 2020 which peaked at more than 1 billion shares. Both Warren and Charlie subsequently stated the sale was a mistake and suggested the remaining investment would be permanent, one of Berkshire’s core economic“groves.”
Three years later, Warren changed his mind, hard to do at any age, particularly having been so public with the sentiment about Apple’s permanence as a holding. The position was reduced to an even 400 million shares at June 30, 39% of the peak holding. I won’t be surprised if the position size was halved again during the third quarter to perhaps ~200 million shares, which would be a $44 billion holding at today’s share price. Had Berkshire sold none of its Apple shares, the position size would be $227 billion on a $36 billion cost.
If correct, combined with ongoing sales of Bank of America and cash earned in its operating companies, Berkshire’s cash will exceed $300 billion, more than 25% of firm assets, a proportionate level of cash last seen in 2004-2006, which was not a bad time to have liquidity as I recall.
I don’t expect to see much in the way of repurchases of Berkshire shares, perhaps none during the quarter. A few shares were actually issued in purchasing Walter Scott’s 8% position in BHE. Unlike Apple’s seeming price insensitivity regarding buying its stock (all $95 billion spent this year at a ~3.3% earnings yield), Warren is extremely price sensitive. At its highs for the year, Berkshire traded at my 2023 appraisal of intrinsic value. At today’s $975 billion market cap, Berkshire is trading just over 16x economic earning power and perhaps 85% to 90% of intrinsic value. The shares aren’t overvalued by any stretch, just not as undervalued as in recent years.
The Apple sales (and others) have MATERIALLY reduced Berkshire’s risk profile. Risk will again be front and center, perhaps soon, and much of Berkshire’s cash will be put to great use for its shareholders’ benefit. I absolutely love the present allocation of Berkshire’s assets. Yet front and center in tomorrow’s headlines we’ll undoubtedly see lamentation over the cash position, many equating it to a liability. No, cash is an asset, particularly having it when others are short of it.
Opportunistic and intermittent deployment of liquidity, cash being an asset and all, is what’s made Berkshire great. And enduring. So has sidestepping risk. Apple at today’s price = risk. Cash ≠ risk. Warren turned 94 during the quarter on August 30. Long live the GOAT. 🐐”
