Forbes – Investing Information and Investing News – Forbes.com”,”description”:”Forbes is a leading s

&l;p&g;&l;img class=&q;dam-image bloomberg size-large wp-image-41659733&q; src=&q;https://specials-images.forbesimg.com/dam/imageserve/41659733/960×0.jpg?fit=scale&q; data-height=&q;640&q; data-width=&q;960&q;&g; Photographer: Luke MacGregor/Bloomberg

For years, Warren Buffett&a;rsquo;s Berkshire Hathaway was after companies with sustainable competitive advantage&a;mdash;companies that had built &a;ldquo;moats,&a;rdquo; barriers to keep the competition off their highly profitable businesses.

In recent years, Berkshire Hathaway seems to have augmented this strategy by including companies that have turned into ATM machines, or cash cows, dispensing billions of dollars to stockholders in the form of hefty dividends and stock buybacks.

IBM was one of those companies. Back in 2011, Berkshire Hathaway poured billions of dollars into the legendary company, which had been pursuing shareholder friendly policies like share buybacks and hefty dividend payouts.

The trouble is that those policies weren&a;rsquo;t sufficient to deliver superior stockholder returns, for a simple reason: the company failed to sustain its competitive advantage and return back to its old high sales and high-margin growth days.

That&a;rsquo;s why IBM missed the big high-tech rally of the last five years.

Apparently, betting on IBM wasn&a;rsquo;t a terribly good idea for Warren Buffett. And it could explain why Berkshire Hathaway is &l;a href=&q;https://www.cnbc.com/2018/05/04/warren-buffett-says-berkshire-hathaway-has-sold-completely-out-of-ibm.html?__source=yahoo%7Cfinance%7Cheadline%7Cstory%7C&a;amp;par=yahoo&a;amp;yptr=yahoo&q; target=&q;_blank&q;&g;dropping&l;/a&g; IBM altogether for another Cash Cow &a;mdash; Apple.

Unlike IBM, Apple&a;rsquo;s shareholder friendly policies have been delivering superior results, as the company continues to enjoy sustainable competitive advantage that delivers high operating margins and strong sales growth&a;mdash;see tables.

&l;strong&g;Apple&a;rsquo;s Key Financial Metrics as of May 4, 2018&l;/strong&g;

&l;/p&g;&l;div class=&q;table-wrapper&q;&g;&l;table&g;&l;tbody&g;&l;tr&g;&l;td&g;&l;strong&g;Forward PE&l;/strong&g;&l;/td&g;

&l;td&g;&l;strong&g;13.93&l;/strong&g;&l;/td&g;

&l;/tr&g;&l;tr&g;&l;td&g;&l;strong&g;Operating Margin&l;/strong&g;&l;/td&g;

&l;td&g;&l;strong&g;26.87%&l;/strong&g;&l;/td&g;

&l;/tr&g;&l;tr&g;&l;td&g;&l;strong&g;Qtrly Revenue Growth (yoy)&l;/strong&g;&l;/td&g;

&l;td&g;&l;strong&g;12.70%&l;/strong&g;&l;/td&g;

&l;/tr&g;&l;tr&g;&l;td&g;&l;strong&g;Qtrly Earnings Growth (yoy)&l;/strong&g;&l;/td&g;

&l;td&g;&l;strong&g;12.20%&l;/strong&g;&l;/td&g;

&l;/tr&g;&l;/tbody&g;&l;/table&g;&l;/div&g;&l;em&g;Source: Finance.yahoo.com&l;/em&g;

&l;!–nextpage–&g;

&l;strong&g;Apple&a;rsquo;s Key Financial Metrics as of November 29, 2016&l;/strong&g;

&l;div class=&q;table-wrapper&q;&g;&l;table&g;&l;tbody&g;&l;tr&g;&l;td&g;&l;strong&g;Forward PE&l;/strong&g;&l;/td&g;

&l;td&g;&l;strong&g;11.09&l;/strong&g;&l;/td&g;

&l;/tr&g;&l;tr&g;&l;td&g;&l;strong&g;Operating Margin&l;/strong&g;&l;/td&g;

&l;td&g;&l;strong&g;27.83%&l;/strong&g;&l;/td&g;

&l;/tr&g;&l;tr&g;&l;td&g;&l;strong&g;Qtrly Revenue Growth (yoy)&l;/strong&g;&l;/td&g;

&l;td&g;&l;strong&g;-9.00%&l;/strong&g;&l;/td&g;

&l;/tr&g;&l;tr&g;&l;td&g;&l;strong&g;Qtrly Earnings Growth (yoy)&l;/strong&g;&l;/td&g;

&l;td&g;&l;strong&g;-19.00%&l;/strong&g;&l;/td&g;

&l;/tr&g;&l;/tbody&g;&l;/table&g;&l;/div&g;&l;em&g;Source: Finance.yahoo.com&l;/em&g;

Apple&a;rsquo;s Key Financial Metrics As of December 5, 2015

&l;div class=&q;table-wrapper&q;&g;&l;table&g;&l;tbody&g;&l;tr&g;&l;td&g;Forward PE&l;/td&g;

&l;td&g;11.02&l;/td&g;

&l;/tr&g;&l;tr&g;&l;td&g;Operating Margin&l;/td&g;

&l;td&g;30.48%&l;/td&g;

&l;/tr&g;&l;tr&g;&l;td&g;Qtrly Revenue Growth (yoy)&l;/td&g;

&l;td&g;22.30%&l;/td&g;

&l;/tr&g;&l;tr&g;&l;td&g;Qtrly Earnings Growth (yoy)&l;/td&g;

&l;td&g;31.40%&l;/td&g;

&l;/tr&g;&l;/tbody&g;&l;/table&g;&l;/div&g;

Source: Finance.yahoo.com

Apple&a;rsquo;s Key Financial Metrics As of June 23, 2015

&l;div class=&q;table-wrapper&q;&g;&l;table&g;&l;tbody&g;&l;tr&g;&l;td&g;Forward PE&l;/td&g;

&l;td&g;13.11&l;/td&g;

&l;/tr&g;&l;tr&g;&l;td&g;Operating Margin&l;/td&g;

&l;td&g;30.15%&l;/td&g;

&l;/tr&g;&l;tr&g;&l;td&g;Qtrly Revenue Growth (yoy)&l;/td&g;

&l;td&g;27.10%&l;/td&g;

&l;/tr&g;&l;tr&g;&l;td&g;Qtrly Earnings Growth (yoy)&l;/td&g;

&l;td&g;32.70%&l;/td&g;

&l;/tr&g;&l;/tbody&g;&l;/table&g;&l;/div&g;

Source: Finance.yahoo.com

The trouble is that no technology company can avoid three major threats: competition from similar products, market saturation, and competition from alternative products.

Old Hewlett Packard is a good example of how those three threats undermine a company&a;rsquo;s competitive advantage. For years its PC and printer sales filled its ATM machines with cash. Then the three threats caught up with HP&s;s businesses, slowing the cash flow into the machine.

A panicking leadership began pouring cash into misguided M&a;amp;A in search of a quick fix to the problem.

The rest is history. Now, the old HP is divided up into two separate companies, in search of a direction to bring back the old glory days.

Qualcomm is another good example. For years, the company was a toll collector. Then competition caught up with the company. And China changed the rules for Qualcomm in its biggest market.

&l;!–nextpage–&g;

While Apple continues to fly high according to traditional financial metrics, there are signs that the three threats are catching up with Apple, too. The company&s;s home base, the American market,&a;nbsp;shows signs of maturity, and competition is catching up with Apple in China, the fastest growing smartphone market.

Meanwhile, Apple has very little to show the world in terms of new products, other than new versions of iPhone, iPad, and MacBook, all developed by Steve Jobs.

It remains to be seen whether Berkshire Hathaway&a;rsquo;s bet on Apple will share the same fate as the bet on IBM.

Leave a Reply

Your email address will not be published. Required fields are marked *