After he has amassed a net worth well into the billions, looking to top investor Warren Buffett for investment inspiration doesn’t seem like too bad an idea.
Since the Oracle of Omaha became the CEO of Berkshire Hathaway, he’s managed to generate average annual returns of 20% – twice that of the S&P 500. Pretty impressive.
Apple (NASDAQ: AAPL) makes up nearly half of Berkshire’s stock portfolio, showing Buffett is clearly bullish on the stock, as he deems it one of his ‘four giants’. Here’s why I agree.
What I most like about Apple is that the value of the company is easy to grasp. As Buffett said, “the important thing is to know what you know and what you don’t know”. In essence, investments should be understandable. Billions of people use Apple products worldwide, so it’s clear to see the use that the company has.
This is shown through the firm’s better-than-expected latest results, where despite the cost-of-living crisis, net sales rose nearly 2% year over year. This included a 3% jump in iPhone sales, while Apple’s services division also saw a rise.
Speaking on its performance, CEO Tim Cook highlighted how it showed “Apple’s constant efforts to innovate, to advance new possibilities, and to enrich the lives of our customers”.
Despite this positive outlook, Cook did also mention the impact of inflation. And this could be a threat to the business in the near term. With it being felt through wages and component costs, this could drag the Apple share price down.
However, with iPhone 13 sales remaining strong despite the near release of a new model, I think this highlights the company’s resilience.
Apple has also been boosted in recent times by its share buyback scheme. The aim of this is to return value to shareholders.
Strategies like this have helped towards a meteoric 320% rise in its share price over the last five years, as last year alone the business spent $85bn on buying back shares.
This trend continued in its latest quarter as Apple returned over $28bn to shareholders.
Despite this, I do have a few concerns surrounding Apple.
With a price-to-earnings ratio of 27, the stock doesn’t seem cheap. Granted, it’s been higher in the past. But with it significantly above the ‘value’ benchmark of 10, this is a worry.
With inflation also set to rise further, Apple’s resilience may break should we see consumers tighten their belts. It has plans to release the iPhone 14 later this year. But with the cost-of-living crisis looking like it’s set to worsen, the business may see a fall in demand for products.
However, there’s talk of Apple freezing the price of the iPhone 14, which goes against the usual trend of incremental price increases for new models. Given the times, this makes sense. And hopefully, this will help offset a slow in demand.
Why I’d buy
So, despite my concerns, I’d still buy Apple shares. Its results show that its capable of navigating tough periods. And with its buyback scheme, along with being an understandable investment, I think it’s a strong addition to my portfolio.
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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.