Were Billionaires Buying Apple Last Quarter?


October 19, 2016, 3:00pm EST

By November 15th, the biggest investors in the world will be required to disclose a snapshot of what their portfolios looked like at the end of the third quarter.

I suspect we’ll find that Apple was heavily bought during the period.

You might recall, the media was stirring about the second quarter filings (which were reported back in August).  Some big names had sold or trimmed stakes in Apple.

But, as I discussed at that time, the Q2 portfolio snapshots came just days following the big surprising Brexit decision in the UK. Global markets swung violently on the news back in June.  Remember, between June 23rd and June 27th, the S&P 500 fell as much as 5.7%.  It made it all back the subsequent four days.

With that event in mind, billionaire investors David Einhorn, George Soros and Chase Coleman – all had sold Apple shares by the end of the second quarter.

But remember, unlike most stocks they own, they can all trade Apple with virtual anonymity between quarters.  The stock is too large for anyone one investor to take a 5% controlling stake, which would trigger the requirement of a 13D or 13G filing with the SEC, which would require updated filings (or amendments) within 10 days of any change in the position size (sell one share, you have to report it).

Einhorn even bragged in one of his investor letter’s this year that they have done a good job of “trading” Apple.

Make no mistake, even with the trimmed stakes of Q2, Apple was (and is) still the “who’s who” of billionaire investor-owned stocks.  It was still Einhorn’s largest position into the end of Q2.  Buffett swooped in and bought shares near the 52-week low.

When we see the Q3 filings next month, I would expect those that were cutting stakes at the end of Q2, were adding it all back in early Q3.  And with the run-up in Apple shares since, up 22% from the June lows, I predict it will be the most bought stock of the third quarter.  If that’s true, I predict the media and Wall Street will be talking about how great Apple is again (i.e. analyst upgrades will follow).

In the past month, there’s been a solid take up on the new iPhone 7 for Apple. Importantly, with the iPhone 7 launch, all four major carriers have returned to the model of offering free new iPhones for long term contracts. That’s a huge positive on the stock as a product-cycle driven company. Add to that, there’s no other stock that, if not owned and owned enough, can get a professional money manager fired than Apple.  That creates a “fear of missing out” trade in the institutional investor community — pushing them off of the sidelines and back into Apple.

But perhaps the most important event for Apple has been the very public implosion of their biggest competitor Samsung.  Samsung has been forced to recall their competitive smartphone the Galaxy Note 7 because it’s been bursting into flames.  It’s projected to cost the company over $5 billion. Most importantly, it’s positioning Apple, right in the sweetspot of their new product (latest phone) rollout, to take more market share.

If we do indeed find next month that the biggest and smartest investors in the world spent Q3 loading up on Apple, it should give a stamp of approval that sentiment has turned for the stock.  Apple remains one of the most undervalued stocks in the S&P 500, with the most powerful fundamentals: it’s cheap at 13x trailing and forward earnings, has an incredible balance sheet with $231 billion in cash, and a high analyst price target of $185 a share.

As I noted last week, the company reported a second consecutive quarter of year-over-year earnings decline in July. But it crushed estimates. The stock took off from $96 and trades today at $117. They report on the most recent quarter on October 25.  The consensus earnings estimate is $1.64–which would be a third consecutive year-over-year decline. The recent revisions to that estimate have been down (not surprisingly), which sets up for a beatThe last time Apple reported two consecutive quarters of year-over-year declines was mid-2013. The stock bottomed in that period.

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