Bruce Greenwald On Apple Inc. (AAPL) vi The New York Times
“Apple is extraordinarily cheap, but it’s never been a value stock in the traditional sense,” said Bruce Greenwald, who runs the value investing program at Columbia Business School and is a co-author of “Value Investing: From Graham to Buffett and Beyond” (Wiley, 2001).
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“Value investing has always focused primarily on asset value,” Professor Bruce Greenwald told me. Apple’s book value, or asset value, of $130 billion isn’t even close to its market capitalization of about $515 billion.
That means, in theory, that other companies could replicate Apple’s assets at relatively low cost, produce rival products and undermine Apple’s enviably high profit margins.
Tech companies typically have low asset values relative to their share prices — one reason Mr. Buffett and other value investors long shunned the sector — but their patented technologies and intellectual property nonetheless often create formidable barriers to entry by competitors.
For an extraordinarily high-profit-margin technology company like Apple, the question is whether there are such “moats,” as value investors like to put it, that will continue to protect it from these competitive threats.
“That’s always been the issue with Apple,” Professor Bruce Greenwald said. “How sustainable are these profit levels and how big are the barriers? The fear with Apple is that it will get overwhelmed by new entry and new competitors. The moat doesn’t seem that big. It’s not just giant rivals like Samsung, but smaller companies that can survive with even a small share of the smartphone market.”
Among technology companies that have already made the same transition, Professor Greenwald cited IBM, Intel, Cisco, Microsoft and Dell, companies whose share prices, after great rocket rides, have mostly languished in recent years. (Dell was taken private in 2013.)
For those who failed to buy the stock early enough, “as investments, they all turned out pretty badly,” he noted.
Berkshire Hathaway also disclosed this week that it had increased the stake in IBM it first acquired in 2011. IBM shares have declined over the period, but by Mr. Buffett’s long-term standards, the investment is still too new to judge.
“If you believe the iPhone will be the global standard in 25 years, you’d buy” Apple stock, Professor Bruce Greenwald said. But many value investors have already seen where smartphones can go, “which is where PCs have already gone.”
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