17th May 2016
Shares in tech giant Apple rose 2.5% on news Warren Buffett’s Berkshire Hathaway took a new $1bn stake (9.8 million shares) in the company in Q1.
Three UK fund managers are supporting the Buffett’s bullish view. They give their reasons below.
Thomas Fitzgerald, EdenTree Investment Management
Apple’s share price has fallen about 28% from 2015’s February peak on uncertainty over the future growth of iPhones, which accounts for 66% of sales. Beyond these near-term concerns, the anticipated launch of iPhone 7 will create fresh opportunity to take further market share. There is also still a large upgrade opportunity within its existing installed base – with only 40% of iPhone users upgraded to the new generation 6 or 6S models.
Continued strong cash generation and its balance sheet fortress will continue to support the Apple’s design and development over the long term. As a result, we believe shares are attractively valued at current levels. The company is also making significant progress towards a higher recurring, subscription-led revenue model through the launch of Internet and entertainment services, such as cloud storage, Apple Music and Apple TV. This could drive greater earnings visibility and potentially stronger profitability in future years.
Geir Lode, Head of Hermes Global Equities and manager of the Hermes Global Equity Fund
The Apple share price has been undergoing some recent volatility, but we remain supporters of the stock. People tend to get hung up on things like new products and how many it is selling, and when it will disclose numbers, but we think you need to take a broader, longer-term view.
There is work to be done in product transitioning in the US and Europe, but if you look at the quality of its product lines versus the competition and the company’s enormous cash pile, we believe Apple remains in a very strong market position.
Josh Spencer, manager of the T. Rowe Price Global Technology Equity Fund
We own a very small position in Apple, as like many others, we find the company and its products appealing. However, we are seeing signs the smartphone industry is starting to mature and Apple is trying to reinvent itself and come up with other ideas to generate revenue.
Its recent share price fall has certainly made Apple appear more attractive, but also important to keep in mind the size of the company. At a market cap of more than $500bn, it is quite difficult to continue to compound from here. We are currently seeing more compelling opportunities to generate returns in the tech sector in areas such as cloud computing.