{"id":160387,"date":"2017-02-25T11:30:39","date_gmt":"2017-02-25T09:30:39","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=160387"},"modified":"2017-02-24T18:06:46","modified_gmt":"2017-02-24T16:06:46","slug":"warren-buffetts-latest-stock-play-is-a-clue-for-reading-the-trump-era-economy","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/trending\/160387\/warren-buffetts-latest-stock-play-is-a-clue-for-reading-the-trump-era-economy\/","title":{"rendered":"Warren Buffett\u2019s latest stock play is a clue for reading the Trump-era economy"},"content":{"rendered":"

While political analysts and journalists obsess about President Donald Trump\u2019s executive orders and their constitutional significance, the investor Warren Buffett has made his judgement clear on how the economy could look during the Trump years. In a massive stockmarket move, he has dumped nearly a billion dollars of long-held shares in retailer Walmart in favour of tech and airline stocks.<\/p>\n

This demonstrates an astonishing change of heart<\/a> for Buffett, who as recently as 2013 referred to the US airline industry as a \u201cdeathtrap for investors\u201d. He was equally renowned for dubbing Apple\u2019s shares \u201cgrossly overvalued\u201d. His perennial faith in retail stocks seems to have evaporated, too, with the world\u2019s most influential investor selling off his entire $900m stake in Walmart.<\/p>\n

Buffett\u2019s complete divestment of his Walmart stock, a company he once deemed his safest and most prized investment<\/a>, comes at a time when America\u2019s traditional retail giant has seen its market share eaten up by Amazon and other online competitors. While Buffett is by no means a short-term trader, his sale of Walmart shares reveals a potential long-term shift in the tide of e-commerce and online retailing.<\/p>\n

Former Walmart boss Mike Duke acknowledged in 2012<\/a> that his greatest regret as CEO was not pursuing e-commerce more aggressively to stave off competition from Amazon. \u201cRight now we\u2019re making tremendous progress, and the business is moving, but we should have moved faster to expand e-commerce,\u201d he said at the time. This is reflected in a declining trend in Walmart\u2019s share price, which has fallen<\/a> from almost US$92 in January 2015 to US$71.45 in February 2017.<\/p>\n

\"\"<\/a><\/p>\n

Moreover, 2017 could prove to be a particularly challenging year for Walmart. Since the last quarter of 2016, the US economy has witnessed increases in gas and food prices, pushing up inflation<\/a>. In addition, delays in tax refunds<\/a> will further crush consumer spending. Walmart\u2019s sales thrive during the tax refund period<\/a>, with almost 35% of its yearly sales coming from the tax season alone. Walmart\u2019s flagship two-day shipping subscription service, ShippingPass, is also expected to struggle against the more popular Amazon Prime.<\/p>\n

Big bite of Apple<\/h3>\n

The sale of Walmart shares enabled Buffet\u2019s Berkshire Hathaway to quadruple its stake in Apple and raise its stake seven-fold<\/a> in the four biggest US airlines. The recent regulatory 13-F filings to the Securities and Exchange Commission reported Berkshire Hathaway owning 57.4m shares of Apple worth US$7.74 billion. This is up from 15.2m shares in September 2016. The investment seems to have raised a few eyebrows since Buffett has always been a reluctant tech-stock buyer<\/a>.<\/p>\n

Berkshire took advantage of periodic dips in Apple\u2019s share price during the final quarter of 2016 by amassing its stake in the company when the price was fluctuating<\/a> between $90 and $118 per share. Apple\u2019s share price currently stands at $136 per share<\/a> owing largely to high retention rates among iPhone buyers. In addition, analysts are expecting record sales of the new iPhone later this year, which is expected to push Apple\u2019s share price even further.<\/p>\n

Apple is also set to benefit from Samsung\u2019s misfortunes<\/a>, due in no small part to the farcical battery problems of its Note 7 and the resulting delay in the Samsung Galaxy S8. In the event of bumper iPhone 8 sales, the projected 16.6% gain in Apple\u2019s share price would leave Berkshire Hathaway with a $1.1 billion profit in 2017 alone.<\/p>\n

High-flyer<\/h3>\n

Moreover, Berkshire also reported a $9.3 billion share purchase in the airline industry<\/a>, with investments spread across American Airlines Group, Delta Air Lines, Southwest Airlines and United Continental. His stake in the four biggest US airlines follows his remarkable turnabout on airline stocks, an industry he famously detested<\/a> for two decades after an unhappy yet profitable investment in US Air Group. Buffett\u2019s interest in airline stocks reflects the overall strength of the US airline industry and \u2013 from a consumer perspective \u2013 the lack of product differentiation in terms of flight quality, air fares and customer service.<\/p>\n

The US airline industry has experienced astonishing growth<\/a> since the financial crisis. All four airlines have reported record profits aided by consistent passenger capacity, lower labour costs, cheap oil and expansion to domestic and international destinations. The industry is also set to receive a significant operational boost<\/a> following Trump\u2019s announcement of plans to scrap the Paris agreement on climate change, which would otherwise restrict airlines\u2019 ability to expand flight frequencies and new routes.<\/p>\n

\"\"<\/a><\/p>\n