Nasdaq AAPL Apple

Many investors carefully follow Warren Buffett's stock moves since his holding company, Berkshire Hathaway, has outperformed the S&P 500 over many years.

U.S. stock indexes were set to open higher on Monday after last week's blockbuster jobs data soothed some fears about an economic slowdown, but investors remained cautious as it also added to expectations of a hawkish Federal Reserve.

U.S. stock index futures rose on Monday after last week's blockbuster jobs data soothed some fears about an economic slowdown, but investors remained cautious as it also added to expectations of a hawkish Federal Reserve.

If you've ever stumbled into financial TikTok, you've likely come across all sorts of unsubstantiated investment advice (among the occasional informative video). These videos are usually conveniently preluded with "this is not financial advice" right before they give you some ter

At first glance, the $43.76 billion Q2 loss posted by Berkshire (BRK.A) might seem unnerving but a little digging indicates the well-oiled Berkshire machine continues to perform even in a difficult macro backdrop.

The insurance and energy to apparel and watches conglomerate reported an EPS of $4,860 versus the Street expectations of $4,740. Additionally, revenue grew 10.2% year-over-year to $76.18 billion. Importantly, operating earnings jumped 38.7% to $9.28 billion. This is a significant jump at a time when companies are reeling from cost pressures and inflation.

Berkshire is a holding company and keeps putting its cash pile to use by investing in names that the Oracle of Omaha favors. This means as the markets plummeted this year, many of these investments including Apple (AAPL) and American Express (AXP) (GB:0R3C) fell in value and impacted the paper profits of the company.

But indices have made a fair bit of recovery since then and needless to say, many of the paper losses have already been recouped. Additionally, Mr. Buffett’s buying spree of Occidental Petroleum (OXY) (GB:0KAK) stock came at a time when the company is churning out robust cashflows (Berkshire’s OXY stake is inching towards 20% now).

While investing gains can gyrate depending on market swings, Mr. Buffett favors operating earnings as a better yardstick for Berkshire. Geico, the company’s insurance unit saw an underwriting loss of almost half a billion dollars but growth in Berkshire’s other units more than offset this bump in Q2.

How Much Cash Does Berkshire Have in 2022?

Earlier this year, Mr. Buffett noted that good opportunities were getting difficult to spot, but since then, the company has put a sizable chunk of its cash pile to use in OXY stock, Alleghany, Chevron (CVX) (GB:0R2Q), and HP (HPQ). Despite these big-ticket splurges, Berkshire still had $105 billion in cash at the end of the second quarter.

Analyst’s Take

Wall Street, in the meantime, has a Hold consensus rating on the stock alongside a price target of $535,000. This implies a 21.72% potential upside in the stock on top of the 7% price gain over the past month.

Hedge Funds Remain Positive

Furthermore, our data dive at Tipranks reveals hedge funds are very positive about Berkshire and have scooped up 214,400 shares over the last quarter. Additionally, Ulambayar Bayansan’s Gobi Capital is betting big on the stock with a 100% increase in its Berkshire holdings.

Closing Note

Berkshire, a veteran of multiple market cycles, continues to deliver outperformance. Despite being one of the most expensive stocks globally by price, a price-to-earnings ratio of 7.9, a price-to-sales ratio of 1.04, and a price-to-free cash flow ratio of 40.40 make the stock attractive. Additionally, a TipRanks smart score of 8 means investors need to keep Berkshire on their radar for the long haul.

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Warren Buffett has a knack for finding high-return equity investments. Between 1965 and 2020, the holding company Buffett runs, Berkshire Hathaway, delivered a compound annual gain of 20%. That's nearly double the S&P 500's annual growth of 10.2% in the same timeframe.

It's hard to argue with the idea Warren Buffett is the greatest living investor. His Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) has generated a 20.1% compounded annual return since he took over the company in 1965, compared to a 10.5% return by the S&P 500 index.

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The Apple (AAPL) empire might be spearheaded by its flagship product, the iPhone, but along with plenty of other hardware offerings, its Services segment has been growing at a fast pace. There’s also talk of a “game changing” AV/VR headset and even of an Apple Car at some point.

But Needham analyst Laura Martin thinks there’s also the prospect of another big revenue stream.

“We believe AAPL is in the early stages of building a new mobile advertising platform,” says Martin, who thinks ad revenue could be a “material upside value driver” for the tech giant for several reasons.

For one, there’s the offensive element. Apple being the largest company in the world, to keep on growing it must focus on big global TAMs (total addressable markets). As eMarketer expects the global digital advertising market to reach $600 billion this year, it certainly qualifies as one.

There’s also a defensive element, as explained by Martin: “Creating a privacy-first ad platform would solve a problem for AAPL's ad-driven apps which have seen their ad revs fall after iOS replaced IDFA with ATT in 3Q21.”

It also amounts to a clever tactical move. Apple operates as a “Walled Garden” and its user data is “best-in-class.” All the while, it is also reducing the tracking and transparency data accessible to other companies. This gives the company’s “pricing power” a boost.

Martin is not just speculating on the matter. There’s evidence of Apple's advertising ambitions, as the company's recent job postings imply a new AdTech platform is being built. Since the early months of the year, there has been a notable increase in the company’s recruiting activity for its Ad Platform unit. Just recently, Apple put up a job opening for "a senior manager for its DSP in its ads platforms business who will drive the design of the most privacy-forward, sophisticated demand side platform possible." Moreover, Apple made its presence felt during June’s Cannes Lions advertising festival. This suggests to Martin, the company is trying to “drive awareness among marketers that it is in the advertising business.”

So, down to the nitty-gritty, what does it all mean for investors? Martin reiterated a Buy rating on Apple shares, backed by a $170 price target, suggesting shares are fairly valued right now. (To watch Martin’s track record, click here)

The Street’s average target is a touch higher; at $180.11, the figure leaves room for a 9% upside from current levels. All told, based on 22 Buys, 6 Holds and 1 Sell, the stock claims a Moderate Buy consensus rating. (See Apple stock forecast on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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