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Alphabet is on Sale: Will Buffett Buy Shares?

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  • (0:30) - Should You Buy More of The Magnificent 7?
  • (8:00) - If Warren Buffett Buys Apple, Should You Buy Too?
  • (32:00) - Episode Roundup: AAPL, GOOGL, BRK.B


Welcome to Episode #360 of the Value Investor Podcast.

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

There is a lot of angst on Wall Street about the stocks of Apple (AAPL - Free Report) and Alphabet (GOOGL - Free Report) this year. Both are off record highs set earlier in the year and neither one is performing like NVIDIA, up triple digits.

Berkshire Hathaway (BRK.B - Free Report) owns Apple shares. Warren Buffett bought a big position in the company in 2016 and considers it one of the four lynchpins of Berkshire Hathaway’s business.

Buffett loves it so much, he gushes about Apple at nearly every Berkshire Hathaway annual meeting.

Berkshire Hathaway Bought Apple on the Cheap

It may be hard to believe today, but Apple was out of favor in 2016 when Buffett dove in. It traded with a forward P/E as low as 10.6 that year. Apple’s 2024 forward P/E is 28. No one is calling Apple a value stock in 2024.

Apple also had a cheap P/S ratio in 2016. The high that year was 2.8 and the low was 2.3. Currently, Apple trades with a P/S ratio of 7.3. It’s not over 10, which is considered expensive, but 7.3 is above the current average of the S&P 500 at 4.2.

Apple also had an attractive P/B ratio in 2016. It’s high was 4.7 and low was 3.9 that year. A P/B under 3.0 usually indicates value. Currently, Apple’s P/B ratio is a sky-high 38.

Criteria for Buffett and Berkshire Hathaway to Buy a Stock

Buffett loves companies with great free cash flow and Alphabet has doubled its free cash flow since 2019. In 2023, it had annual free cash flow of $69.5 billion, up from $30.9 billion in 2019.

Buffett also likes companies that are doing share buybacks and Alphabet announced a $70 billion buyback in April 2023.

Does Alphabet have a moat? Berkshire Hathaway looks for companies with competitive advantages of a “moat.”

Alphabet’s advertising revenue has been a moat over the last two decades, although some are questioning whether AI might eat into it. But Alphabet also has YouTube, which recently posted its best quarter for ad revenue ever.

Buffett also likes companies with great management who have been in a place for years. Alphabet fits that bill.

Will Buffett Buy Shares of Alphabet for the Berkshire Hathaway Stock Portfolio?

Tune into this week’s podcast for Tracey’s analysis of Alphabet’s valuation. The stock is on sale. But is it cheap enough for Buffett to dive in?

[In full disclosure, Tracey owns shares of GOOGL in her personal portfolio.]


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Apple Inc. (AAPL) - free report >>

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