Episode 34 | Market Updates on Apple, Berkshire Hathaway, and Walmart

In Episode 34 of “Market News with Rodney Lake,” Rodney Lake, Director of the GW Investment Institute, provides a market update, focusing on key developments in Apple, Berkshire Hathaway, and Walmart. Apple’s $500 billion investment over the next four years in the U.S. stands out, with plans to expand manufacturing, R&D, and AI infrastructure. Berkshire Hathaway’s performance draws attention with record operating earnings and a huge cash pile. Still, questions arise about whether its next leadership under Greg Abel can continue striking the deals Buffett has achieved. Finally, Walmart’s earnings exceeded expectations, driven by growth in higher-margin businesses like advertising and Walmart Plus, though its high valuation and low net margins may pose challenges for investors.

Transcript

Thank you for joining “Market News with Rodney Lake.” This is a regular program for the GW Investment Institute where we talk about timely market topics. I'm Rodney Lake, the Director of the GW Investment Institute. Let's get started. Welcome back to “Market News at Rodney Lake.” I'm your host, Rodney Lake. We're coming to you from the GW School of Business right here in Foggy Bottom in Washington, DC.

George Washington School of Business, our home. So what are we going to talk about today? This episode is going to be a little bit different. We're not going to tackle a single company. We're not having a guest. We're going to do a little bit of a compilation market news, just as we do in class sometimes. What's the reason?

Well, there's so much stuff going on. We've covered a lot of the companies in the portfolio. So today I want to take a little bit of time for this episode to review a few things that are happening in the market that I think you should be paying attention to if you're an analyst, if you're watching these companies. But we don't necessarily need to go over, you know, each company with the framework.

We'll talk about the framework for sure, business management, price valuation and balance sheet. But again, this episode will be a bit of a compilation covering a few companies that are in the portfolio and in the news and things that I think as an analyst, as a business person, as an investor that you should be thinking about, you should be considering, you should be evaluating, you should be working on.

So first up is Apple. So why why do I want to talk about Apple? It's one of the largest positions in the portfolio for the GW Investment Institute. And again we've covered it before business, management, price valuation, and balance sheet. It's been some time and we'll do another episode where we we cover it again. But one of the reasons I want to talk about Apple is because very recently, April or sorry, February 24th, 2025.

So that'll date this part of it. They announced $500 billion investment in the United States over the next four years. So this is a pledge, you know, it garnered a lot of news. This is a huge investment, and they're talking about doing a few key things. One of the key things, and again, this is a very substantial maybe, maybe wouldn't call it a divergence.

But alongside all these big, you know, operations that they partner with on the outside like Foxconn in China, you know, bringing manufacturing back to the US, bringing R&D, which we'll talk about here in a second, back to the US is significant. So one of the things, one of the initiatives is a facility in Houston, Texas. The factory is in collaboration with Foxconn.

In this case, they'll produce servers that power Apple Intelligence. So, if you you've been following the phones, Apple Intelligence on on the 16s. And I think that's, you know, critical for people that, you know, wanting access to that information, they're gonna have to continue to build out that that infrastructure. And but they're doing it here in the US.

And that's a little bit of a divergence, from how it was done in the past. Another big part of that, they're going to hire 20,000 workers as part of this effort. So that that's quite significant. Another piece of this, is going to be, you know, an increase in a manufacturing fund, more, you know, chips being produced from Taiwan Semiconductor’s factory in Arizona.

And so these are, you know, these are a shift from, you know, where things have been, which is mostly done overseas and bringing some of that, you know, back to the US. Another part of this is R&D in Detroit. So research and development and so this is, you know, has, you know, to do with, you know, the Trump tariffs that were announced and bringing things back to the US.

So this is a very significant investment. If you're an Apple investor, I encourage you to really deep dive into this. We're just obviously covering the surface areas here. But I think these things are important. So this is a big announcement. This is a big dollar number $500 billion over over four year over a four year period. You know, you're going to get this work done in Houston around the AI servers.

And that's going to help power the Apple intelligence for the new, you know, the newest phones that are out, you know, increase in the manufacturing fund, an increase and and building out of Taiwan Semiconductor and the reliance on chips that are produced here in the US. And so I think, again, this is a very significant set up.

And then the R&D that's happening, as I mentioned, in and around Detroit. So and again, all this tied into what's happening with the tariffs, from the Trump administration and and a look to avoid that. So I think it's you know, it's a big number. It's obviously going to catch people's eyes. It's going to be, you know, something that's, you know, interesting for people.

But again, as a business person, as an analyst, and certainly we’re shareholders at the Investment Institute of Apple and it's one of our largest positions, I think we should be thinking about it. So and again, we're not going to do a full rundown. But let's just then now talk about some of the components for Apple. So when you're talking about the business, most people know what the business here is.

How does Apple make money? You know, you you have a phone. And then they sell things through the phone. So that's a huge platform. You know, over a billion users all across the world. You know, they basically own the high end of the market. And, you know, have had a fantastic business. And the iPhone was, 2007.

And since then, it's really been a the dominant phone is certainly at the high end. And, you know, unlike some of the, of the other competition they build, you know, vertical, as far as the phone goes. So they control the hardware and the software, the operating system, iOS and Apple has been, you know, let's say mixed more recently.

So if you look at, okay, well, what's the market cap $3.7 trillion. So one of the largest companies obviously in the world. And you know the numbers are have been okay. Right. The year to date is down. But the one year return is up 34%. And if you look at some of the basic, you know, changes in the business, there hasn't been much as far as changes go, but they're pouring a lot of money into these operations.

So that could significantly alter the way that the business is shaped on the operational side moving forward. So, again, as an analyst, as a business person, as an investor, and us as shareholders at the Institute, I think these are things you should be paying attention to. And, and again, why, we have this episode is a compilation. I think that's a significant piece of news that you should pay attention to.

And I think it's something that is catching people's eyes, but the numbers are big enough where it can make a significant difference. So if this does pan out, it's not just, oh, we're going to put, you know, $10 billion. Sounds like a lot of money. Certainly for an individual. But when you talk about the scale of Apple and $3.7 trillion market cap, it's not really, but $500 billion over four years and getting that money to work, and building out things that are certainly very important now around AI as an example, in advanced manufacturing and research and development happening back here in the US, more and more, that is significant.

So I think it's worth paying attention to. Certainly Apple has its own ecosystem for its chips it designs, but it doesn't manufacture, so the E series of chips, as an example. And so I think these things are worth paying attention to. And again, as an analyst, as a business person, as an investor, and certainly, as a shareholder right now, I think it's important for us to pay attention to so.

Well, we may come back to Apple, for the business here, but, you know, let's, you know, quickly, go through the framework, but not deep dive management. Tim Cook has been doing a great job. Certainly negotiating with the different administrations, including the Trump administration, and keeping its eye on its global operations. I think Tim Cook has been very adept at doing this, and really has been fabulous, as a manager of Apple and really has shepherd them into and to new heights, certainly since he has taken over.

Now there are questions, you know, you know, what's next? Is there a succession in place? And I think those are all valid questions to ask. Tim Cook has been in the seat for quite a long time now. It has done phenomenally well. No signs that he needs to go or anything. But certainly, you know, when someone is in the seat that long, you start thinking, okay, is there who's next?

And so I think that's worth, you know, asking, but I think they they've done a very good job. That's management. And so fantastic management, of course. And so we get into the price valuation. Even though the business, and maybe one of the things that we can tackle, on the business side here for, for Apple, before we go on to the valuation here is just some of the metrics around, on the margins.

And so I think it's important, you know, to talk about. So just jumping back to the business for a moment now on Apple, you're talking about revenue through December here, $395 billion. And you're talking 46%, gross margin. So, you know, $184 billion, but really exceptional margins, especially at that scale. And you look at the net margins, almost 27%.

So these this is a fantastic business, right. And if you look at the where to talk about the multiple, it's certainly got rerated over time. So when people thought okay they're very heavily reliant on the cycle for phones, which they were. But once the platform got bailed out, the ecosystem got bailed out. They started adding services. You talk about the ecosystem that that Apple has built and keeps people in.

Well, those services are cheaper to sell. So the marginal cost of delivery is lower. So that means the marginal profit is higher. And so you can have higher margins when you get higher margins sustained over time. And you also have this reoccurring cash flow. If you have subscription revenue as an example, people are willing to pay more for that.

So if you look at the multiples over time that people have been willing to pay for Apple, now this has happened over the years. But certainly people have been willing to pay higher and higher multiples in a sign, a higher multiple for Apple over time. But if you really then look at where it is now, it's about, you know, 33.5 times forward earnings.

That's really not exceptionally high, not for a fantastic company. I think the question here in why the market, and again insert opinion, this is entertainment purposes only. Double triple quadruple disclaimer for all our episodes is that and possibly people are concerned about what where does Apple grow from here? So if you're looking at really the revenue growth, on this and you bounce back to the revenue growth side, you're thinking, oh, well, they're growing 2% a year, maybe 2.5%, you know, how do they get to, five, ten, you know, percent? Possible, they're going to have to unlock some other markets, possibly India, possibly this, you know, a lower priced

version, that people can have access to for the, for the higher end AI components, but maybe without the phone that they're trying to push out. So they're a variety of ways that they might get there. However, it's maybe not obvious to everyone. And if you look at the multiple, this is a possible reason why you have that multiple.

So and again, not exceptionally, you know, bad or anything like that, or exceptionally high, from from, you know, if you're looking to buy shares of Apple, but certainly not, you know, you wouldn't say it's dramatically underpriced. You shouldn't certainly say it's a it's a great value, at this, at this price. And then you look at the balance sheet here.

Well, you know, on the balance sheet side, this is something where Apple has had a really a strong balance sheet, $141 billion in cash at year end, 24, $96 billion, in debt. So they are carrying quite a lot of debt. And they have actually reduced that. So if you look at from 2021, almost $137 billion, they've taken that down over time to under $100.

They're at $96, but still a huge net cash position. So if you just use round numbers, let's say 40 billion in net cash right now, $141 billion and $96. So again just kind of round numbers $40 billion in net cash on the balance sheet. The trajectory in which you've talked about this before for other companies has been down over the last few years, which I think is responsible management.

And the cash is obviously been in a net cash position in any case. So they could obviously eliminate that if they absolutely had to. And certainly the debt markets have been open for Apple. So not really an issue. And then the other part which we when we talk about, the balance sheet, you want to know, well, okay, what are the numbers around, cash flow from operations and free cash flow?

So cash flow from operations at the end of 24, $108 billion. CapEx, you know, right around $10 billion. And that's been pretty consistent over time. And obviously, you know, that's likely to be going up from here. And then you're talking, you know, $98 billion in free cash flow. And so again, not not super concerned. And again, this is not an episode just about Apple, but wanted to talk about that $500 billion investment in the next four years in the US.

I think that's super significant. I think you should be paying attention to that. And we may come back to Apple, in this episode towards the end here, but let's move on. So what else is happening that I think, again, as an analyst, as a business person, as an investor, that you should be focused on, that you should be thinking about, that you should consider, you know, for your time.

Well, another company that we own in the portfolio, and again, we won't do a deep dive, we're, you know, covering really market news like we do in class now is Berkshire Hathaway. So Berkshire Hathaway announced really fantastic operating earnings. Almost $48 billion in operating earnings, you know, 25 plus percent increase from the previous year.

And a record level of cash, $334 billion in cash. And so when you look at this, you know, they’re really firing, maybe not on all cylinders because if you sort of dig down, they're sort of uneven. So Berkshire has a bunch of operating companies, and they saw earnings declines, and a little over half of those and obviously increases in others that more than offset that.

And remember, you know, Buffett has a significant significant proportion of companies that are public listed companies that are in the portfolio. That's why, he says, focus on the operating earnings, which excludes that, but does have to flow through. So if you're looking at the numbers online and you're like, that doesn't match up, that's because the overall number for earnings is going to include those mark to markets, which he thinks.

And I agree with that. It's really not relevant looking to that quarter to quarter. You really want to look at what are the operating companies doing over time. And obviously you're looking for those businesses to improve over time, that they own on the equity side. But okay. What is this? What does this mean? Well, certainly. Now if you thought about Berkshire, it is a really diversified business.

It has operations across a wide variety of different companies, in different businesses, in different industries. Obviously insurance, energy, are big ones, railroads, big ones. And so, and then the compilation including Apple, as an investment in their portfolios, but they also have oil and gas as an example. And so, you know, what does this mean for the economy?

So if you look at Berkshire, versus the economy, you certainly see as a representation rather of the economy, you can certainly see that you know, if about half of their companies, didn't perform well and another half did really well and more than made up for that, you're certainly seeing this uneven distribution of returns as far as you know, the ability for these companies, to perform in this environment.

And possibly that's the way that the broad market is also going to to do. And the other big thing I think is worth mentioning is that the cash continues to pile up at Berkshire. And if you look at the cash pile, $334 billion record levels, you know, Buffett, you know, effectively not finding, you know, values that he likes and companies and certainly at this scale, you know, they have to he calls it, you know, having the elephant gun at this scale

They really have to buy entire companies, to put any meaningful amount of cash to work. And certainly the equity portfolio there, they are putting money to work. But you're really talking about, super big numbers. And of course, you know, Buffett's 94 years old, on the management side. So that's the business. Let's duck into the management here for a second.

Obviously, Buffett is the is the face of the company and has been for 60 years. And Charlie Munger recently passed away. Certainly. Rest in peace. To him. But, you know, if you look at if you look at what's happening. Buffett is 94, right? How much longer is he going to run the business? He acknowledges Greg Abel as the successor.

He's, you know, in his 60s, so much younger guy, certainly than Buffett. And I think has Buffett demonstrates lots of confidence in Greg Abel and has really over time in the last few years, for that now, a question for all of us who's owned Berkshire and certainly for the, for the Investment Institute, and anybody that's even casually followed Berkshire Hathaway.

Is Berkshire Hathaway going to get the same kind of deals that Buffett got? Are they going to be able to strike these deals with these companies and take them private or these private companies and make them part of Berkshire Hathaway? Are people going to have the same willingness with Greg Abel to do those deals? Maybe.

Right. And another piece, going back to the business that things that did, well, their investments in these Japanese trading companies, that has proved, very successful in the way that they finance it, basically, you know, they're getting more of an dividends from than what they're paying, for borrowing the money in yen. And so really, matched that up really well over there.

And these companies have continued, to do well. So really great call there. So and Greg Abel was involved in that and really was sitting side by side quite literally, on I think it was CNBC at the time talking about that investments when they started doing those things. So I think it's really important. And they obviously made strides to to make it super important for people to understand that Greg Abel is out there.

And, you know, going back to management here. But I think it is an open question. I think it would be very difficult to say that for anyone. And some people have probably better insight. And I don't talk to Greg Abel or Buffett on a daily basis here, but I think you would have some challenging to say that.

Greg Abel, you know, even if he's very effective, it's going to have the same type of opportunities, presented to them as Buffett did. Now, time will tell. Because Berkshire has built this fortress, because they have this cash, because people know that they they buy and hold for the long term. And if Greg Abel continues this type of mantra, this type of culture, possibly they continue to get these types of deals where people want to sell their business to Berkshire because they want to preserve it.

You know, they built it over time, and it is a home where they can take it and sell their business. And if they need to get out of the business for whatever the reason is, or it's just time for them to move on, but they don't want their business destroyed. You know, Berkshire Hathaway is highly decentralized, continues to be highly decentralized.

And so it's a place where you could sell the business to Berkshire if you're the business owner and founder and CEO and feel good that they're going to take good, responsible care for this business and all the people that have helped grow this business over time and work there currently. So I think that's, you know, it can happen.

But I think it's an open question whether it will happen, or not. And, you know, back to, you know, what's Buffett thinking about for the cash pile? It's been piling up and they've been effectively net sellers of equities. And so, you know, we'll see. So for you know, what they're doing, it seems counter-cyclical to what's happening in the markets.

The markets have been, you know, year to date. I think it's a little bit more challenge, but certainly over the last year, the last two years, the markets have done very well. So if you look at the calendar year for, last year, 24, in the year before, 23, you had really remarkable years, above average returns for both of those years.

And I think people are are, you know, can we have a third year for the same thing? Now, you know, insert where interest rates are, where the ten year coming down a little bit, and tried to unlock the economy and certainly tied into all this is trying to get inflation out of the system. If you look at what's happening in DOGE, that's possible in the fiscal side.

If you make really good reductions there, and then certainly on the monetary side, you need to do work there, to get the rates down. So that can be an unlock. Now if we move on. You know, that's the business. That's the management. We'll see. The price valuation, you know, certainly you wouldn't also call, you know, Berkshire very, cheap or expensive here if you look at it on a PE basis, which, which is hard to do sometimes, but you can look at it 25 times that

That's kind of a market multiple. The market cap $1 trillion. Certainly one of the few very, few non-tech companies that are at that level at the trillion dollar mark. So really remarkable, growth certainly over the time for Buffett. And certainly not a super expensive valuation from here. And if you look at, you know, Buffett would look closer to price to book, which he would, they're not buying back shares.

And sort of the number that they have is 1.2. And now it's around 1.6 and a half times. And so that would, you know, for a reference point at 1.2, you could certainly say that the 1.6 is much higher than that. And, you know, as we're recording this in, in, mid-February or later February, it's hitting a 52 week high.

And so certainly people are appreciating, the earnings power that this company has, that Berkshire has, they're looking past any sort of succession issue and thinking that, okay, even if if it's Greg Abel today or tomorrow, that, that people think that he's going to do a good job and possibly get maybe similar, not the same deals, as Buffett and certainly when you talk about the balance sheet, we just mentioned that the cash pile.

And so certainly you're not worried about the balance sheet for for Berkshire, over $300 billion in cash. And so not a concern. Really there. And so again, that is in the news. And we're just going to touch on one more company and we won't spend a ton of time on this company, but another company that that announced earnings recently.

And we, this is an investment in the, in the portfolio, and has been is Walmart. And so Walmart you know and now it's better than expected earnings had a tough time right after that. But they look at the year to date for 2025 you're up 7%. So when you talk about the business I think most people know the business for for Walmart and but if you read through the earnings announcement and again, I think if you're a business person, you're investor, you should be paying attention to to Walmart.

Even if you're not, you know, directly invested, you're not a shareholder because I think they obviously it's a huge company, huge retailer, huge grocer. It touches a different, you know, a wide swath of the economy. So on the retail side. So I think it's important to understand what they're doing and how people are also valuing them.

And look, they've grown their advertising business. So some of the higher margin business as they have grown and the Walmart Plus. So I, I think they're doing a good job there in the markets. Definitely giving them credit. So business wise, again, I think people know that I think less people probably understand that they're making strides in advertising, making strides in the Walmart Plus, those are higher margin businesses.

So I think it's important for people to pay attention to those things, those growth drivers that are outside the traditional retailing experience at Walmart. But, you know, you get to the management, you've had fabulous management. Really no concerns on the management side there. Really, fantastic here. McMillon has, I think, done a, you know, a really great job, at, at Walmart and and, you know, I think is doing a really a fabulous job, hasn't been there, as long, and so, you know, versus historical, let's say set up, but I think it is doing a fabulous job.

So management, I, I think you can give sort of high marks to we won't give any scores necessarily today. But then you get in, you know, how is Walmart doing on the price valuation side? I think this is where people get a little bit concerned if you're an investor in Walmart and you're thinking like, well, let me check out this company, from the valuation side and you're paying, you know, 36 times forward, right, for a retailer.

And when we go back, if you think about the business side of Walmart, you're talking single digit margins, on the net side. So that's very challenging, I think, for an investor to say, okay, but net margins, 3%, you know, not something, you know, gross margin of 25. Net 3. They have a lot of work to do on those higher margin businesses.

To make a big difference there. But, you know, I think it's important I think on the balance sheet side, you know, moving quickly to the balance sheet, not super concerned there. You know, they have as 9 billion in cash, 60 billion in debt. So certainly not as comfortable as one of the tech companies.

But if you if you think about, you know, sort of their ability to generate cash flows, not super concern there. And if you look at, you know, what's the interest coverage ratio? 13 times. Not super comfortable, but certainly not a huge concern on the interest coverage ratio. So overall quite good. And so those are the three companies.

So when we talk about market news in class we go over a lot of more things in a much shorter period of time. Just a few minutes. But for today's episode I just wanted to cover those three companies, because they are very much in the news. They're across a few different industries. So I think it's important, you know, tech, certainly, conglomerate, and then retailer.

So I think it's important as an investor, as a business person, as a shareholder in these companies, for us at the Investment Institute, it's important for us to pay attention to these things. So I encourage you to look at Apple, the $500 billion you're putting to work over the next four years, bringing that money back to the US, advanced manufacturing, AI, R&D.

I think that's super important. If you look at Berkshire, obviously had done well on the operating earnings side, trillion dollar market cap, 300 billion plus in net cash, net sellers of equities, seemingly concerned about what's the valuation for companies across the market. Important to watch them. Uneven distribution of how things have turned out there as far as the operating companies.

You know, half have done well have if not approximately, let's say, but more than half have done more than made up and had a very good picture on the operating earnings side. Continue, again, to increase that cash pile. So seem to be concerned. Walmart did very well. So that you know don't bet against the US consumer has held up.

They did sell off after that. But the metrics look look good. If you look at the non sort of retail businesses that are growing around advertising and the Walmart Plus obviously connected their higher margin businesses. Things to be you know excited about there. But again these are three companies, behemoths all of them. You should be looking at them.

You should be checking them out. You should be trying to understand them. And again as an investor, as a business person, as a shareholder, in these companies, for us, we want to take time. We want to make sure we have a good view on what's happening. And I think when if you look at these three companies, you're getting a broad section of, of what's happening, out there in the economy.

And I think they can give you some insight into what's going on, inform your opinions for other companies as well. So that's it for this episode. I encourage you to keep on, you know, invest and keep on doing your research. We look forward to seeing you back on the next episode of “Market News with Rodney Lake.” Thank you.

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