Coverage: Berkshire Hathaway buys $1 billion of Apple stock

The business news media was full of stories during the last 24 hours about the disclosure from Warren Buffett’s Berkshire Hathaway Inc. that it had purchased $1 billion worth of Apple stock.

Johanna Bennett of Barron’s had the news:

The legendary investor firm reported owning 9.81 million shares of Apple as of March 31, worth about $1.07 billion, according to a 13-F filing today. Apple rose more than 2% after the opening bell, rising to $92.42 in recent market action.

A 13F filing with the SEC is a quarterly requirement for investors managing more than $100 million. The report indicates the number of shares held and the value of each stake at the end of the quarter.

It would seem that Berkshire is betting that Apple’s share price could recover after the iPhone sales fell and the tech titan company reported its first quarterly revenue decline since 2003 last month. Apple shares have fallen 19% since mid April and are down almost 30% over the past 12 months.

Matt McFarland of The Washington Post examines why Buffett would buy the stock given his past aversion to investing in tech companies:

The Apple investment appears especially curious given that Buffett’s only prior tech investment, IBM, hasn’t fared well so far. The stock’s performance has trailed U.S. markets the past five years.

But much has changed since Buffett first invested in household names such as Coca-Cola and Geico. Now Buffett is 85, and his apparent successors at Berkshire Hathaway, Todd Combs and Ted Weschler, wait in the wings. The duo invest independently, so a tech company that makes semiconductors, such as Apple, is fair game.

After the news broke of the investment, Buffett told the Wall Street Journal that either Combs or Weschler made the investment.

For David Kass, a University of Maryland business school professor who writes frequently on Buffett, that makes sense given that the size of the deal, roughly $1 billion, is the amount that Combs and Weschler typically invest. Buffett himself generally invests in the $10 billion range.

Philip Van Doorn of MarketWatch.com wrote about how Apple is a classic Berkshire investment:

In December, we considered which companies might be able to continue handing outsized returns to investors based on returns on invested capital (ROIC) and the likelihood that the companies would continue to produce goods and services that people really want or need. (FactSet defines ROIC as earnings divided by the sum of the carrying value of a company’s common stock, preferred stock, long-term debt and capitalized lease obligations.)

Return on equity (ROE) is also a useful figure for stock investors, because it represents their portion of a company’s performance. But ROIC estimates management’s efficiency in allocating all types of money.

Apple’s return on invested capital for its fiscal second quarter was 27.5%. That was down from 31.2% a year earlier. Among the 228 companies in the S&P 1500’s technology sector for which this information is available from FactSet, Apple ranked 13th for the most recent quarter, which isn’t bad for a company that some people say is in its death throes. Remember that any quarter can greatly skew a company’s ROIC because of one-time events that distort earnings.