A Tale of Two Apples

09/07/2016 9:00 am EST


James Pearce

Director of Research, Investing Daily

It was the best of "Apples", it was the worst of "Apples"—depending on what type of investor you are, quips Jim Pearce, editor of Investing Daily's Mind over Markets.

At the same time a high-profile hedge fund manager was reducing his position in Apple (AAPL) during the second quarter of this year, legendary investor Warren Buffett was increasing his stake by 55% to a little more than 15 million shares, or roughly $1.6 billion worth.

Buffett buying more Apple comes as no surprise, since it's the type of reliable cash cow that he has built his fortune upon.

Apple generates positive cash flow and steadily rising dividends. It also enjoys a level of global brand recognition that few other companies can.

Apple is no longer a growth company but has become the quintessential value stock. With a market cap of $590 billion, Apple is simply too big to grow earnings at the same rate it used to.

That's fine if you are patient, long-term investor like Buffett, but not so great if you are a hedge fund manager whose performance is measured in quarters instead of years.

That probably explains why Scion Asset Management, a hedge fund managed by Michael Burry, recently sold all 75,000 shares of Apple it owned.  That's the same Dr. Michael Burry made famous by the bestselling book and movie "The Big Short.”

Carl Icahn also bailed out of Apple after concluding that economic weakness in China would prevent the company from achieving its near-term growth objectives.

Burry and Icahn have impressive track records. The fact that they have independently arrived at the same conclusion regarding Apple, which is diametrically opposed to Buffett's opinion, does not necessarily mean that they are wise and Buffet is foolish. 

If you are an aggressive investor looking to quickly and vastly outperform the stock market, then owning Apple doesn't make much sense.  

But if you are a conservative investor interested in dependable stocks that should beat the market over the long haul, then Apple fits the bill.

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By Jim Pearce, Editor of Investing Daily's Mind over Markets

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