This piece originally appeared on Money.com.
Three months after Berkshire Hathaway began investing in Apple (AAPL), Warren Buffett’s investment company dramatically boosted its stake in the iPhone maker, according to a new government filing.
The world’s most successful investor now owns nearly $1.5 billion worth of the tech giant’s stock.
Yet as recently as 2012 Buffett vowed that he wouldn’t invest in companies like Apple or Google (a.k.a. Alphabet). At his shareholder meeting four years ago, the Oracle (ORCL) of Omaha said that while he was okay with old-guard names like IBM (IBM), he was uncomfortable betting on fast-growing tech disruptors. “The chances of being wrong with IBM are probably less, at least for us, than the chances of being way wrong in Google or Apple,” he told shareholders.
So what changed Buffett’s thinking? Nothing.
It’s Apple that has changed.
1) Apple is no longer a fast-grower.
The big headline Tuesday morning was that Berkshire Hathaway was boosting its stake in Apple at the same time it was selling some of its holdings in Walmart (WMT). The immediate reaction in the financial press was that this was a classic case of an investor trading in a slow “old economy” stock for a faster-growing “new economy” alternative.
Yet Apple is not a fast grower anymore — at least not by Wall Street standards.
Over the next five years, the company’s earnings are forecast to grow a modest 8.7% annually, according to a survey of analysts by Zacks.com. That’s down from the 30% annual growth rate Apple enjoyed over the past five years.
To put this in perspective, even the industrial behemoth General Electric (GE) is on pace to grow faster over the next five years, with a projected growth rate of 10.5%.
2) Apple is officially an old-fashioned value stock.
While investors are generally willing to pay up to buy fast-growing tech names, that’s not really been the case for Apple. In fact, the stock trades at price/earnings ratio (based on projected earnings over the next 12 months) of about 12.
By comparison, the P/E ratio for the broad stock market is about 19, while tech stocks generally trade at roughly 20 times their forecast profits. This means that Apple is relatively cheap and should attract bargain hunters like Buffett.
Berkshire Hathaway’s recent 13-F filing shows that the investment holding company recently added to its stake in Apple and oil refiner Phillips 66 (PSX), which sports a P/E of less than 13.
At the same time, Buffett trimmed his exposure to Walmart, with a P/E of 17; Suncor Energy at 26; Liberty Media, 19; and VeriSign, 19.
In other words, he is replacing higher-priced stocks with cheaper alternatives. Classic Buffett.
3) Apple actually isn’t a tech stock anymore. It’s a consumer staple.
There is a growing belief that some big, established tech companies — such as Microsoft — are becoming essentially staid and steady consumer staples stocks. In other words, they aren’t that different from boring, dependable stocks like Procter & Gamble (PG) that manufacture products households need.
In Microsoft’s case, any user of a PC still has to buy periodic software updates to keep their laptops running, year in and year out.
The same argument is now being made with Apple. As John Stoltzfus, chief investment strategist for Oppenheimer, recently pointed out: Buffett’s interest in Apple is “a formal acknowledgement of the ubiquitous presence of technology throughout the business and consumer world.”
Apple’s business model is not that different from Gillette’s razor-and-blade approach, where purchasing the basic service item (the razor) requires you to buy a constant stream of its companion products (the blades).
Apple’s iTunes media platform is the razor. After years of buying music, videos, and other media off of iTunes, consumers are locked in, as it would be too costly to repurchase everything on the competing Android platform. And new iPhones that come out every year are the disposable but pricey blade.
4) Apple is a clear contrarian play.
The one thing that Buffett has always been comfortable with is zigging when the markets zag. As he has famously said, the key to successful investing is being “fearful when others are greedy and greedy when others are fearful.”
Well, in recent months, the so-called smart money has been fearful of hanging onto their Apple shares now that the company’s growth is slowing. Among big-name hedge fund managers who have been selling their share in Apple recently are George Soros, Carl Icahn, David Einhorn, and David Tepper.
So in that sense, it’s not that surprising that Buffett was uncomfortable owning Apple four years ago, when Apple was the stock to own, but is okay buying now.