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Warren Buffett in annual letter calls Apple one of ‘Four Giants’ driving Berkshire Hathaway’s value

KEY POINTS
  • Warren Buffett called Apple the second-most important business after Berkshire’s cluster of insurers.
  • The “Oracle of Omaha” made clear he is a fan of CEO Tim Cook’s stock repurchase strategy.
  • Berkshire’s Apple stake is now worth more than $160 billion, taking up 40% of its equity portfolio.

Warren Buffett said he now considers tech giant Apple as one of the four pillars driving Berkshire Hathaway, the conglomerate of mostly old-economy businesses he’s assembled over the last five decades.

In his annual letter to shareholders released on Saturday, the 91-year-old investing legend listed Apple under the heading “Our Four Giants” and even called the company the second-most important after Berkshire’s cluster of insurers, thanks to its chief executive.

“Tim Cook, Apple’s brilliant CEO, quite properly regards users of Apple products as his first love, but all of his other constituencies benefit from Tim’s managerial touch as well,” the letter stated.

The “Oracle of Omaha” made clear he is a fan of Cook’s stock repurchase strategy, and how it gives the conglomerate increased ownership of each dollar of the iPhone maker’s earnings without the investor having to lift a finger.

“Apple – our runner-up Giant as measured by its yearend market value – is a different sort of holding. Here, our ownership is a mere 5.55%, up from 5.39% a year earlier,” Buffett said in the letter. “That increase sounds like small potatoes. But consider that each 0.1% of Apple’s 2021 earnings amounted to $100 million. We spent no Berkshire funds to gain our accretion. Apple’s repurchases did the job.”

Berkshire began buying Apple stock in 2016 under the influence of Buffett’s investing deputies Todd Combs and Ted Weschler. By mid-2018, the conglomerate accumulated 5% ownership of the iPhone maker, a stake that cost $36 billion. Today, the Apple investment is now worth more than $160 billion, taking up 40% of Berkshire’s equity portfolio.

“It’s important to understand that only dividends from Apple are counted in the GAAP earnings Berkshire reports – and last year, Apple paid us $785 million of those. Yet our ‘share’ of Apple’s earnings amounted to a staggering $5.6 billion. Much of what the company retained was used to repurchase Apple shares, an act we applaud,” Buffett said.

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

Railroad and energy

Buffett also credited his railroad business BNSF and energy segment BHE as two other giants of the conglomerate, which both registered record earnings in 2021.

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

Berkshire’s operating earnings surged 45% in the fourth quarter, thanks to a continued rebound in its railroad, utilities and energy businesses from the pandemic hit.

Buffett bought back a record of $27 billion of Berkshire shares in 2021, as the investor continued to prefer internal opportunities in an increasingly expensive market. Berkshire’s cash pile stood at a near record $146.7 billion at the end of last year.

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