Buffett unlikely to buy more Apple barring ‘significant pullback’ – analysts

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Bernstein analysts reflected on Berkshire Hathaway ‘s (NYSE:BRKa) (NYSE:BRKb) investments in the IT Hardware sector in the last 10 years or so.

Warren Buffett’s Berkshire previously owned IBM (NYSE:IBM) shares while its current portfolio includes a massive Apple (NASDAQ:AAPL) stake, as well as a position in HP (NYSE:HPQ).

The Apple investment has been “a home run,” say the analysts, while IBM proved to be a “significant drag on Berkshire’s performance”.

“IBM, AAPL and HPQ nicely fit Buffett’s key investment tenets: notably, the companies have leading market positions/share, recognizable brands, strong capital return/disciplined capital use and reasonable valuations,” the analysts said in a note.

While some investors questioned Buffett’s decision to invest in HPQ, the analysts argue that he may have seen a similar potential for the company to extend its product franchises like Apple.

“We worry that a technology change (a shift away from printed pages) risks undermining HP’s earnings power, akin to what happened with IBM. We also believe that switching barriers in HP’s core businesses are very limited, unlike Apple and iOS,” the analysts added.

As far as Apple is concerned (39% of Berkshire’s portfolio), the analysts believe the legendary investor is unlikely to add more to his position “unless it experiences a significant pullback.”

“Buffett has been an extremely disciplined purchaser of Apple shares, buying at 25x earnings (the stock is at 28x today)… Total capital return is ~4% today (in good part because of its valuation), below the level it was when he purchased the majority of his stake. We in large part agree with Buffett – while Apple is a great company, its valuation appears less attractive on an absolute basis and vs. other larger cap tech companies,” the analysts concluded.

Apple shares are up 22.6% year-to-date (YTD).