May 24, 2022

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Warren Buffett in his annual speech describes Apple as one of the “Four Giants” driving conglomerate value

Warren Buffett in his annual speech describes Apple as one of the "Four Giants" driving conglomerate value

Warren Buffett, Chairman and CEO, Berkshire Hathaway Inc

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Warren Buffett He said he is now considered a tech giant an Apple As one of the four pillars of leadership Berkshire Hathawaywhich is a collection of old economy companies that he has assembled over the past five decades.

In his annual letter to shareholders issued on Saturday, the 91-year-old investment legend listed Apple as “Our Four Giants” and called the company the second most important company after Berkshire’s group of insurers, thanks to its CEO.

“Tim Cook, the illustrious CEO of Apple, quite aptly regards users of Apple products as his first love, but all his other classes also benefit from Tim’s management touch,” mention the message.

The Oracle of Omaha explained that he admires Cook’s stock buyback strategy, and how it gives the giant conglomerate increased ownership of every dollar of the iPhone maker’s earnings without the investor having to lift a finger.

“Apple – the giant that held second place as measured by its year-end market value – is a different kind of holding. Here, ours is just 5.55%, up from 5.39% the year before,” Buffett said in the letter. “This increase looks like a small potato. But keep in mind that every 0.1% of Apple’s 2021 profit was $100 million. We didn’t spend any Berkshire money getting our backlog. Apple buybacks did the job.”

Berkshire began buying Apple shares in 2016 under the influence of Buffett’s deputy investors, Todd Combs and Ted Wechsler. By mid-2018, the giant conglomerate had accumulated 5% of the iPhone maker, a stake that cost $36 billion. Today, Apple’s investment is now worth over $160 billion, which is 40% of Berkshire’s stock portfolio.

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“It is important to understand that only Apple dividends are accounted for in GAAP earnings reports in Berkshire – and last year Apple paid us $785 million of that dividend. However, our ‘share’ of Apple’s earnings was $5.6 billion,” he said. Buffett said the detained company was being used to buy back Apple stock, an act we applaud.”

Berkshire is Apple’s largest shareholder, outside of index providers and exchange-traded funds. The group has enjoyed regular profits from the tech giant over the years, averaging $775 million annually.

Railways and Energy

Buffett also credited rail company BNSF and energy sector BHE as two other giants of the conglomerate, both of which posted record profits in 2021.

“BNSF, our third giant, continues to be the number one artery of American commerce, making it an indispensable asset to America as well as to Berkshire,” Buffett said. “BHE has become a utility force and a leading force in wind, solar, and power transmission across much of the United States.”

Berkshire’s operating profit rose 45% last quarter, thanks to the continued recovery in the rail, utilities and energy business from the pandemic outbreak.

Buffett repurchased $27 billion of Berkshire stock in 2021, as the investor continued to favor insider opportunities in an increasingly expensive market. Berkshire’s cash pile amounted to nearly $146.7 billion at the end of last year.