My focus amid the evolving tariff situation; Hat tip to Warren Buffett; Thoughts on Apple's stock at these levels; A mysterious gambler 'took down the Texas lottery' to win nearly $60 million

1) As you would no doubt expect by now, the tariff details keep changing...

Late on Friday, it appeared that President Donald Trump's administration was exempting a range of Chinese-made electronic products like iPhones from its 145% tariffs. And that could – at least temporarily – benefit companies that manufacture certain electronic devices outside the U.S.

This Wall Street Journal article from yesterday has more details: Shifting Signals on Tech Tariffs Fuel Fresh Trade Uncertainty. Excerpt:

The exemptions, if they remain, signal that for now, smartphones, chips and other devices won't face tariffs at the same rate currently imposed on goods imported from China. As the U.S. and China subsequently raised tariffs on each other's products in rapid succession, Apple was among the companies with the most at stake because it makes most of its devices in China.

Exemptions would also mark an initial victory for the tech industry in the new Trump administration. Executives flocked to Mar-a-Lago after Trump was elected and donated millions to his inauguration. So far, their efforts hadn't resulted in many public victories. Many of the companies continue to face antitrust cases and are lobbying for favorable artificial-intelligence regulation.

But then yesterday afternoon, President Trump posted this on Truth Social – saying that a tariff exception wasn't announced on Friday:

Meanwhile, as that same WSJ article notes, there are still huge uncertainties:

"The turmoil of this tariff roller coaster is going to continue to have negative effects," said Adam Thierer, a senior fellow at the R Street Institute think tank focused on technology and innovation. He hopes the exemptions were a signal that the administration is pulling back from extreme policies. Thierer and other experts have warned that tariffs on tech products would undermine the U.S. in its artificial-intelligence race with China...

Neel Kashkari, president and CEO of the Federal Reserve Bank of Minneapolis, said Sunday prospects of a recession will be determined by whether there are "quick resolutions" to trade uncertainties with major trading partners. He pointed to recent declines in consumer confidence as troubling.

"This is the biggest hit to confidence that I can recall in the 10 years that I've been at the Fed, except for March of 2020 when Covid first hit," he said. "So when there is that kind of hit to confidence it can have large effects on the economy."

I wish I could tell you with confidence how the tariff wars, especially with China, are going to play out, but I can't. (And I'm skeptical of anyone who claims to have a good crystal ball.)

So I'm going to focus on what I do know how to do: analyze companies and wait for fat pitches.

2) You have to tip your hat to Warren Buffett for building a huge $334 billion cash pile – equal to 28.9% of Berkshire Hathaway's (BRK-B) assets – at exactly the right time...

Regular readers will recall that I discussed this in my February 25 analysis of Berkshire's latest earnings report. That huge amount of cash – and the fact that the company's businesses aren't as affected by tariffs as other firms – helps explain why the stock is only down about 3% from its all-time high.

As usual, Berkshire's stock is a safe harbor in a storm – which is one of the reasons I like it so much. I wish I could recommend buying it right now... but it remains slightly overvalued, as I discussed in my March 3 e-mail. (That said, I think it's a comfortable hold for long-term-oriented investors.)

3) Berkshire's primary exposure to tariffs was through its holding in Apple (AAPL), but Buffett has wisely been selling it down.

I applauded the decision in my November 4 e-mail, writing:

I've said previously that I think this has been a good sale, for risk management and diversification. In addition, I still believe it will likely be difficult for Apple's stock to outperform going forward for three main reasons:

• The company is so large ($391 billion in revenue) that growth becomes increasingly difficult.
• With a $3.4 trillion market cap (as of Friday's close), share repurchases won't move the needle as much.
• As of Friday's close, the valuation is high. At 36.7 times trailing earnings and 30.2 times next 12 month expected earnings, it's close to the highest level in 16 years.

Apple's stock is down nearly 11% since then... so might it be interesting now?

I was thinking about this as I read a pair of articles over the weekend about the company...

The first, in the New York Times, is quite bearish. It highlights a lack of innovation and successful new products, among other issues: What's Wrong With Apple? Excerpt:

Even before President Trump's tariffs threatened to upend Apple's manufacturing business in China, the company's struggle to make new products was leading some people inside its lavish Silicon Valley headquarters to wonder whether the company had somehow lost its magic.

The tariffs, which were introduced April 2, caused Apple to lose $773 billion in market capitalization in four days and briefly lose its standing as the most valuable publicly traded company in the world. But investors had already started to sour on the company, sending its share price down 8 percent in the first four months of the year, double the S&P 500's decline.

And as the article continues:

Apple had hoped to revive its fortunes over the past year with a virtual reality headset, the Vision Pro, and an artificial intelligence system called Apple Intelligence. Sales of the headset have been a disappointment, however, and the signature features of the A.I. system have been postponed because it didn't work as well as the company had expected.

The company's issues underscored how its reputation for innovation, once considered a fundamental element of its brand, has become an albatross, fueling angst among employees and frustration among customers. And company insiders worry that Apple, despite its years of gravity-defying profits, is hamstrung by the political infighting, penny pinching and talent drain that often bedevil large companies, according to more than a dozen former and current employees and advisers.

The other article, in the WSJ, is more positive. It notes how well CEO Tim Cook has guided the company over time: Tim Cook's 'Long Arc of Time' Prepared Apple for the Trade War. Excerpt:

The iPhone is exempt from the White House's latest escalation of the trade war with China, the Trump administration quietly announced late Friday.

The disclosure came after more than a week of existential dread. At one point, Apple had lost almost $800 billion of market value after Trump officials claimed imposing sky-high tariffs on Chinese-made goods would shift iPhone assembly to American factories.

Meanwhile, the article notes that Cook and Trump "seem to be playing a different game":

Trump was forced to backpedal by the quickly eroding stock and bond markets – his go-to measure of public support. Meanwhile, Cook looked toward the "long arc of time" – his go-to guide in a world where investors and customers constantly agitate for what's coming next for Apple, have little patience and judge the chief executive on a quarterly basis.

That doesn't mean that for a brief moment things didn't look really, really bad for Apple – or could get messy again, with the Trump administration on Sunday suggesting the reprieve might be temporary.

Apple is down about 24% from its all-time high near $260 per share in December. But in light of the massive new tariff risk (and its nosebleed valuation at the time), I think the stock should be down closer to 50%.

At Friday's close of $198.15 per share, it's trading at about 27.3 times analysts' earnings estimates of $7.26 per share for this year – and I think those estimates are at high risk right now.

Apple is such a great company that the stock will probably do fine... but I wouldn't be tempted at the stock's current level.

4) Finally, another article over the weekend in the WSJ caught my eye not just because it's a crazy story...

It also underscores the importance of casting a wide net, looking at a lot of opportunities, but only actually taking action rarely – when the odds are highly favorable: How a Secretive Gambler Called 'The Joker' Took Down the Texas Lottery.

As the article explains, it started in spring 2023. At the time, a banker-turned-bookmaker in London named Bernard Marantelli had a plan to clean up on the Texas lottery:

He and his partners would buy nearly every possible number in a coming drawing. There were 25.8 million potential number combinations. The tickets were $1 apiece. The jackpot was heading to $95 million. If nobody else also picked the winning numbers, the profit would be nearly $60 million.

And as the article continues, a secretive gambler named Zeljko Ranogajec – nicknamed "the Joker" – helped bankroll the operation:

Over the years, Ranogajec and his partners have won hundreds of millions of dollars by applying Wall Street-style analytics to betting opportunities around the world. Like card counters at a blackjack table, they use data and math to hunt for situations ripe for flipping the house edge in their favor. Then they throw piles of money at it, betting an estimated $10 billion annually.

The Texas lottery play, one of their most ambitious operations ever, paid off spectacularly with a $57.8 million jackpot win...

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.