It’s been a roller coaster ride since we added Apple shares to the Biznews Global portfolio in June 2015. We went big – allocating a hefty 15% of the assets in this tightly targeted investment play at an average price of just under $125 a share.
The timing wasn’t great with the stock dropping back to $90 as Wall Street lost confidence in CEO Tim Cook’s ability to reinvent the house Steve Jobs built. But after this week’s price surge and a little help from SA’s sliding currency, the investment has delivered a chunky 35% in just over two years.
Apple stock got a serious boost in January when that most rational of beings, Warren Buffett, filed a notice showing his Berkshire Hathaway had acquired 72m Apple shares at between $115 and $120. This added to the initial 10m shares Berkshire picked up a year before.
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Buffett is famously shy of tech stocks. And as he was taking a hiding on his first foray into the sector, IBM, you can be sure he did plenty homework before taking a bite of Apple. So it wasn’t surprising to see him doubling up, and at end-March Berkshire owned 133m shares worth over $20bn making Apple the second biggest bet in Buffett’s share portfolio.
Having the Oracle of Omaha buying big in a share you already own provides comfort. But for me, the real attraction has always been Apple’s deep ecosystem, a priceless asset whose value is obvious to fans, but seemingly ignored by Wall Street.
The usual Apple entry point nowadays is an iPhone (41m sold in the June quarter); but often that’s followed by a Mac, an iPad, Apps, maybe AppleTV and perhaps an Apple Watch. Soon enough fans will be dreaming of owning an Apple driverless electric car and whatever else Cook’s troops dream up.
The ability for each of these devices to seamlessly and securely talk to each other is what appeals to most users. With a total of 1.2bn iPhones having been sold, what economists call the “network effect” is huge and expanding.
Apple’s share price hit a record $159.75 yesterday, taking its surge since the latest quarterly results to an impressive 6%. Wall Street analysts were impressed at numbers that beat expectations, focusing on the iPhone which generates two thirds of Apple’s revenues. But what really got them excited was the buzz around the 10th anniversary smartphone – the iPhone 8, which is on schedule for release next month.
Whispers are the 2017 model will be a significant upgrade on the releases of recent years, rumoured to be incorporating a high definition screen allowing facial recognition thus opening up a new world of opportunities. But the newcomer’s design and feel is also set to be very different to the existing offerings. It is this aspect which is getting investors excited.
Like most other multinationals, the size and continued growth of the Chinese consumer makes the Middle Kingdom a critical market for Apple. But unlike in the West, in China the Naspers associate TenCent “owns” the smartphone user interface with 700m people relying on its WeChat App rather than the phone manufacturer’s operating system.
As a result, the Chinese buy their phones for reasons other than familiarity with its operating system. The Apple brand is much loved, but the appearance of the devices themselves need to be distinctly different if the company is to regain 2015’s 14% market share (now 9%) in this highly aspirational market.
Apple is doing its best to dig deeper into China. A China MD reporting directly to CEO Cook has been appointed, and the company has banned Apps which had managed to get around China’s tight internet censorship regulations. Those moves will help curry favour with the authorities. But for Wall Street, everything now rests on the iPhone 8.
If the new product lives up to expectations, today’s record share price will seem a bargain. I’ve got a feeling neither Buffett not the Chinese consumers will be disappointed.
