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Buffett Bets $28 Billion On Apple Loyalty

Warren

There’s nothing like a bit of love for a stock from Warren Buffett to boost shares. Apple shares closed up nearly 2 percent on Monday after Buffett told the world that Berkshire Hathaway bought Apple more than anything else.

In early trading Tuesday, shares hit a new all-time high, reaching $180.48.

In 2017, Berkshire Hathaway held $28.2 billion in Apple shares. That made Apple second only to Wells Fargo in Berkshire’s portfolio.

But that was last year--now Apple is in the top spot.

Two weeks ago, Berkshire disclosed it had increased its stake in Apple by 23 percent to some 165.3 million shares. That’s a $28-billion share in Apple. Berkshire’s reported stake in Wells Fargo is $27.8 billion. 

Oh, and they dumped nearly all of their stake in IBM.

So, Buffett thinks Apple is worth owning—more than anything else. Why? Buffett is said to be one of the few people on the planet who don’t even own a smartphone, after all.

In an interview with CNBC, Buffett called Apple an “extraordinary consumer franchise with an uncanny ability to attract new customers to its products, mainly the iPhone, and retain them through many years”.

In other words, he’s banking on the unlikelihood of users switching to another brand under any circumstances. He sees loyalty as the winning set-up--even in the aftermath iPhone “batterygate” scandal, when Apple admitted that it intentionally slowed down performance of older versions of iPhones.

Though the tech behemoth is facing an investigation by U.S. Department of Justice and the Securities and Exchange Commission and 60 class-action lawsuits in the US and abroad, potential sales losses refuse to knock it down.  

Plus, Apple’s apologized, in a manner of speaking. In January, it started offering $29 in-store battery replacements for affected devices, down from the regular price of $79.

Now it’s gearing up for the release, later this year, of three new smartphones: the largest iPhone ever, an upgraded iPhone X and a less expensive model. Apple's iPhone X fell short of expectations last year. Thus, the upcoming rollout, tentatively slated for the fall, will offer more options for consumers. Related: The Hidden Threats Stock Market Investors Are Neglecting

With a screen close to 6.5 inches, Apple’s big new handset will be one of the largest mainstream smartphones on the market, though the actual size of the phone will mirror the iPhone 8 Plus.

The “D32,” meanwhile, will be kind of an upgraded iPhone X, and Apple also plans to use the more expensive OLED technology that’s used in the regular iPhone X.

Apple’s previous “low-cost” model, the iPhone 5C, was discontinued after losing a fight with popularity, but the new lower-cost model will share some keys features with the iPhone X.

Not everyone agrees with Buffett, of course.

Some analysts claim that “batterygate” will see up to 16 million fewer iPhones sold this year. Not because they are giving up on die-hard loyalty to Apple, though, and trading it in for another brand: Rather, because they’ll take advantage of the $29 battery replacement and hang on to their old phones. These skeptics say it could cost Apple as much as $10 billion in lost revenue.

Buffett clearly isn’t buying, it though, and this is a bet on the power of loyalty all the way.

By David Craggen for Safehaven.com

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