Apple Stock Predictions: Why Warren Buffett Went Long On Apple

motek 1The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology  – Senior Analyst at I Know First


May 22nd, 2016

Apple Stock Predictions


  • Apple-logoWarren Buffet is one of the recent buyers of Apple shares.
  • This was a big relief because the market was bearish on Apple after Carl Icahn dumped his shares.
  • Apple doesn’t qualify for the classic Benjamin Graham formula of long-term value investors but Buffett still approved the bet on Apple.
  • Read this article and you will understand the positive effect of Buffett’s gamble on Apple.
  • I Know First Algorithm is currently bullish on AAPL Stock

After Carl Icahn announced last month that he dumped his shares, Apple (AAPL) has received largely negative perceptions from the stock market. AAPL’s price only recovered after it was revealed that Warren Buffet’s Berkshire Hathaway bought some shares last week. It wasn’t Mr. Buffett that made the bet on AAPL. It was one of his trusted stock picking minions that did it.

However, Warren Buffett is the boss and he obviously approved the $1 billion bet on Apple. The effect was beneficial, the revelation helped boost Apple’s value by more than $18 billion. Please study the chart below, AAPL’s price has steadily climbed up since the May 16 revelation that Buffett went long (+5.19% since that day).

You are lucky if you bought Apple at below $93.

apple Stock Predictions

(Source: Google Finance)

The endorsement from Berkshire Hathaway has since inspired other investors to reveal they are also betting on Apple. David Einhorn (Greenlight Capital) and Leon Cooperman (Omega Advisors) are just two fund managers who recently bought Apple shares.

The buy-stamp from Buffett and Einhorn will keep pushing AAPL’s price back near $100. It’s always best for a small retail investor to ride on the bets of billionaires. Institutional investors only account for 58.41% of Apple shares but I expect this to go higher after Berkshire’s endorsement.

Why Buffett Approved of Apple

Buffett is a firm believer in the seven rules of defensive investing created by Benjamin Graham. If we use Graham’s rules, Apple is certainly not qualified under both Defensive Graham and Enterprising Graham’s rules. Study the charts below from Serenity Stocks, Apple did not all seven requirements of Defensive Graham investing. Apple failed rules numbers 2, 3, 5, and 7.

apple Stock Predictions

(Source: Serenity Stocks)

The simple explanation is that Buffett liked the $233 billion cash hoard of Apple. With that much amount of idle money, Apple could offset any weakness in iPhone sales by acquiring control of other tech companies. Below is a Finviz chart of tech firms with less than $200 billion in market cap.

apple Stock Predictions


Apple’s deep stack of cash could let it become a major player in enterprise software/services if it buys either Oracle (ORCL), SAP (SAP), or International Business Machines (IBM). Berkshire Hathaway has a stake in IBM. There’s the likelihood that Buffett’s people could broach the idea of a merger between Apple and IBM.

Apple could also take control of Intel (INTC) or Qualcomm (QCOM). Another option is for Apple to buy Advanced Micro Devices (AMD) for less than $4 billion. Owning AMD will let Apple create custom x86 desktop and server processors. AMD also has its Radeon GPU division. With so much cash available, Apple could definitely spend enough money for R&D to create rivals products against the moneymakers of Nvidia (NVDA) and Intel.

Apple is also rich enough to buy 100% of Disney (DIS) or Netflix (NLFX) to make itself one of the hottest media empires on the planet. Seducing Mark Zuckerberg with a $100 billion offer for his controlling shares might also help Apple take control of Facebook (FB). Advertising is Apple’s weakness. Getting control of Facebook will greatly boost Apple’s ad-related revenue stream.

Apple’s electric car project is also a believable expansion product. Right now only Tesla (TSLA) is making an impact in electric vehicles. Apple has enough money  to develop a better EV than what Tesla has now. Who knows two or three years from now, Apple will surprise us all with a $40,000 electric iCar product.

My point is that all the negativity over the perceived peaked sales of iPhones does not diminish Apple’s long-term value. Tim Cook’s company has saved up enough money to comfortably grow beyond its “iPhone Maker” moat. Apple is not a hostage to its smartphone business.

Final Thoughts

I advise small retail investors to add AAPL to their long-term portfolios. Apple is too rich to fail or fade away anytime soon. Compared to its peers in the Consumer Goods sector, Apple trades at a lower P/E, P/S, P/B, and P/Cash valuation. This is blatantly unfair since Apple has millions of very loyal iOS device and Mac computer customers.

apple Stock Predictions


I am also confident that the iPhone will continue to deliver strong sales for five more years. Intel’s retreat from mobile processors means Microsoft’s (MSFT) rumored Surface phone will again come with an ARM-based chip from Qualcomm. An Intel-less Surface phone cannot deliver the pocket computer concept that could threaten the appeal of the iPhone.

Without Intel’s subsidized Atom phone chips, there will be less $300 high-end Android phones that will threaten the iPhone.

My bullish endorsement for Apple is backed by the positive algorithmic forecasts from I Know First. The 1 month, 3-month and 12-month algorithmic forecasts for AAPL are all positive. The underlying future trend is that this stock is likely to go up in price.

apple Stock Predictions

In addition, previously I Know First Algorithm correctly predicted AAPL stock movement. In this stock forecast, we can observe how Apple had a bearish signal of -0.57 and a predictability of 0.2 on Nov 15th,2015 and in just 3 months the stock managed to go down to 15.88% as the algorithm correctly predicted.

Apple Stock Forecast