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Follow me on twitter @ChrisDungeon In addition to writing for Seeking Alpha, I'm currently an Electrical Engineer turned Entrepreneur with a major focus on Long Term Investing. I've been investing in the stock market ever since I started my own car detailing business at 12 years old. I model my... More
  • Why Warren Buffett Isn't Buying Apple 0 comments
    Jan 1, 2013 4:49 AM | about stocks: KO, AAPL

    One word - loyalty.

    It's no secret that Warren Buffet and Bill Gates are best of friends. So it shouldn't be a surprise to say that Buffett buying AAPL shares would be a big slap in the face to Gates. It would be analogous to Gates buying Pepsi stock to Buffett's roughly 9% ownership in The Coca Cola Company (NYSE:KO).

    Many believe that Buffett is staying away from Apple because it is out of his area of confidence. I disagree with that sentiment, as Apple is far from a complicated company. Apple maintains a simple product line that is luxurious in nature.

    One of Buffett's all-important investment tenets is pricing power. A measurement that easily allows a company to raise prices on consumers without losing sales volume. As a luxury brand, people have been willing to go out of their way to pay ample amounts for Apple's products. Why? Because Apple retains their strong brand image by giving us all the latest consumer technology contained within looks we desire.

    The Fundamentals Buffett Loves

    1. Strong Brand Image

    There's no denying that Apple is a strong brand, if not currently the strongest in the world. I'd say Coca Cola has Apple beat out on worldwide recognition, but Apple has them on pricing power and earnings.

    2. Pricing Power

    Pricing power is one of Warren Buffett's go-to requirements for buying any business. If a business does not have pricing power, it will be impossible for it to avoid competition and inflation from creeping in and eventually eliminating any and all profit margins.

    3. The Moat - Industry Leading Products

    Apple has yet to follow any of their competitors. In fact, every competitor tries (and fails) to make copycat versions of Apple's game changing products. Every one of Apple's competitors waits in the shadows for product releases, hoping they have enough time to reverse engineer before it's too late - See Zune, Android Phones & Kindle.

    4. Consistent Earnings Growth

    Going back to 2003, Apple has grown earnings at annual compound rate of an astonishing 104% - $68 Million to the current $41.73 Billion. In five years, that annual growth has come down to 64% ($3.5 Billion to $41.73 Billion) - still plenty phenomenal.

    Conclusion:

    There is no denying Apple's strong fundamentals - fundamentals that are in line with Buffett's investment requirements and would have him buying into Apple. I'm positive Buffett has personally done investment calculations on Apple at the current $500 level. As a value investor, Buffett can't shy away from Apple's obvious investment potential, but the fact of the matter is that he won't buy any AAPL shares because his best friend founded Microsoft.

    Disclosure: I am long AAPL, KO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Themes: long-ideas Stocks: KO, AAPL
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