Warren Buffett chomped on nearly 10 million Apple (AAPL) shares in the first quarter, marking his conglomerate Berkshire Hathaway's (BRKB) first investment foray in Apple.
The news did more than help Apple stock rebound more than 3% on the stock market today. It brought to the front burner an issue simmering away in the investing world for a while now: Is Apple done as a growth stock?
Buffett, a legendary value investor, has typically avoided technology stocks. His Apple stake was worth roughly $1.1 billion as of March 31. The stock has dived roughly 14% since then. For its fiscal third quarter ended March 31, Apple reported its first-ever decline in iPhone sales.
Some value-oriented actively managed mutual funds are starting to see the iPhone maker as an attractive opportunity too. After all, Apple stock is trading near a two-year low and at a price-to-earnings ratio of 10 based on trailing 12-month earnings vs. 18 for the benchmark S&P 500 index.
Compare that with Amazon (AMZN), an IBD Leaderboard stock whose muscular growth is reflected in a trailing 12-month P/E of 293
"Apple is increasingly viewed as appealing by some active value funds, but it is a growth stock according to index providers such as S&P Dow Jones, FTSE Russell and others," said Todd Rosenbluth, director of ETF and mutual fund research at S&P Global Market Intelligence.
Active managers are free to range when choosing stocks. American Funds American Mutual Fund (AMRMX) and John Hancock Funds Disciplined Value Fund (JVLAX) are among the mutual funds categorized as large value that own Apple, a growth stock.
The tech giant has a roughly 1% weighting in each portfolio. The John Hancock fund first bought Apple stock in March.
In the passive investing world, ETFs and mutual funds must adhere to their underlying indexes.
And Apple is held in the growth indexes, at least for now. Both the $28.69 billion iShares Russell 1000 Growth (IWF) and $13.40 billion iShares S&P 500 Growth (IVW) allocate roughly 5% of portfolio assets each to Apple, their No. 1 stock holding.
Stocks are put into the growth or value segments of a parent index -- such as the S&P 500 -- based on mathematical calculations, said David Blitzer, chairman of the index committee at S&P Dow Jones Indices.
The quantitative rules that determine a style-based index's components look at dividend yield, growth in sales, growth in earnings and other measures, he added. The indices are rebalanced once a year, in December.
Any changes can generate heated feelings among investors.
"Some people get very upset," usually when growth stocks that have stopped growing move to a value index, Blitzer told IBD.
Will Apple be one of them?
"I don't have any idea at this point," Blitzer said, adding he hasn't heard from too many people who consider it a value stock.
