The Oracle of Omaha’s moves may be explained by his philosophy of emphasizing a company’s historical financial track record versus putting credence in aggressive future forecasts from analysts.
“I think it’s fair to say, we’ve never looked at a [analyst] projection in connection with either a security we’ve bought or a business we’ve bought,” Buffett said during a Berkshire Hathaway annual shareholder meeting in 1995, according to remarks found using CNBC’s Warren Buffett Archive.
Apple “is an unbelievable company,” Buffett told CNBC on May 3. “If you look at Apple, I think it earns almost twice as much as the second most profitable company in the United States.”
The smartphone maker generated a $48.35 billion in profit during its fiscal 2017 and made $13.8 billion in net income during the March 2018 quarter.
In comparison, Amazon’s total net income since inception is about $9.6 billion. The number was calculated by adding up all of Amazon’s annual net income figures since its inception to the company’s $1.6 billion profit in the March 2018 quarter.
One Wall Street analyst believes Amazon is still in the “early stages” in many of its key markets.
“We are in the sweet spot between Amazon investment cycles where new fulfillment/data centers are driving accelerating revenue growth while incremental capacity utilization is driving margin expansion,” Goldman Sachs analyst Heath Terry wrote in a note to clients last month. “We still remain in the early stages of the shift of compute to the cloud and the transition of traditional retail online and, in our opinion, the market is underestimating the long-term financial benefit of both to Amazon.”
As Buffett puts less credence on aggressive future forecasts, that is why he is probably attracted to Apple’s current high level of profits versus Amazon’s potential.