Over the weekend, Berkshire Hathaway Inc. ( BRK.A, BRK.B) reported a rare quarterly loss due to accounting changes. However, investors focused on Berkshire’s record operating income and CEO Warren Buffett’s bullish commentary on Apple Inc ( AAPL), Berkshire’s largest stock holding.
Berkshire reported a first-quarter net loss of $1.1 billion due to a new accounting rule which requires the company to report unrealized stock investment gains or losses as income. Buffett said the new accounting rules would result in wild quarterly swings in income of as much as $10 billion per quarter.
[See: 9 Investing Steps From Warren Buffett’s Playbook.]
He also said investors should instead focus on Berkshire’s operating earnings, which were up 49 percent to a record $5.3 billion in the first quarter. Berkshire also reported revenue of $58.7 billion, down 9.1 percent from a year ago and slightly below consensus analyst forecasts of $58.7 billion.
Berkshire’s stock investments may not have performed well in the first quarter, but things may be looking a bit better in the second quarter. AAPL stock is up more than 10 percent since the end of March, and Buffett disclosed on Friday that Berkshire bought another 75 million shares of Apple stock in the first quarter.
In an interview with CNBC on Monday, Buffett said he’s a big fan of Apple’s aggressive share buyback program and said Berkshire has bought about a 5 percent ownership stake in Apple. “I’d love to own 100 percent of it,” Buffett says. “We like very much the economics of their activities. We like very much the management and the way they think.”
Last week, Apple announced a new $100 billion share buyback plan. Buffett said that massive share buyback will allow Berkshire’s ownership stake in the company to grow from 5 to 6 percent over the next couple of years even if Berkshire doesn’t buy a single additional share.
Morgan Stanley analyst Kai Pan says Berkshire is staying true to Buffett’s investing principles of buying quality stocks at fair valuations and holding for the long term.
[See: 10 Ways You Can Invest Like Warren Buffett.]
“They think Apple fits that bill, with quality products and sticky customers,” Pan says. “Mr. Buffett agrees with Apple’s $100 billion share repurchase plan, as the company is unlikely to find large acquisitions in current environment.”
Morgan Stanley has an “equal-weight” rating and $210 price target for BRK.B stock.
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Berkshire Hathaway Inc. (BRK.A, BRK.B) and Apple (AAPL) Are a Perfect Match originally appeared on usnews.com
