163 Billion Reasons Why Buffett Bet On 1 Stock

Warren Buffett is one of the most famous investors of all time, and every move he makes is closely scrutinized by analysts around the world. The attention is warranted, because Buffett took his firm, Berkshire Hathaway, from a failing textile mill operation to an investment giant with an equity portfolio worth over $350 billion today.

Buffett has been very open about his investing philosophy over the years. His popular ground rules like “Don’t lose money” and “Don’t invest in companies you don’t understand” have guided thousands of investors. 

Another central tenet to Buffett’s strategy is to look for companies with a strong competitive advantage. Companies that have a more substantial moat are more likely to achieve long-term success. For this reason (and many others) Warren Buffett has invested around 51%, or $163 billion, in one company: Apple (NYSE: AAPL).

Why Did Buffett Buy Apple Stock?

Apple was founded in 1976 and the company built a historic brand, from Mac to iPhone. But even though Apple has been around for decades, Buffett didn’t take a significant stake in the company until 2016. He bought in then because AAPL met another one of his criteria: it was trading at a fair price.

In 2016, Apple shares were on the decline and were trading around a 10 P/E value. That’s a bargain for a tech stock with a wide moat, and Buffett knew it. Since then, AAPL shares have risen over 575%. And when Apple had a tough quarter in 2022 and shares declined, Berkshire Hathaway took the opportunity to buy more.

The investing magnate invested in Apple because it’s a well-managed company with a proven track of success. It has a strong line of products that are easy to use and understand. But it’s the competitive advantage that continues to separate Apple from the field. 

While nearly three-quarters of Apple’s 2nd quarter of 2023 revenue came from device sales, over 25% of revenue came from software and in-app purchases in the company’s proprietary ecosystem. That ecosystem makes it hard for customers to leave the brand, and hard for competitors to challenge Apple’s advantage.

Is Apple a Good Stock To Buy Now?

Apple just announced its 2nd quarter of 2023 earnings, and even though overall revenue fell 1% year-over-year, the decline was in line with analysts’ expectations. Revenue from iPhone, iPad, and Mac was down in all cases, a trend the company expects to continue through the next quarter but pick up at the end of the year.

However, the company’s services segment increased revenue by 8% in the 2nd quarter. This segment includes the App Store and Apple Pay, but it also includes revenue from Apple TV+ and iCloud. Apple now has over 1 billion paying subscribers and that’s a strong testament to the brand and the moat that the company has established.

With a P/E value of around 30, some investors might worry that the stock is overvalued. But Apple’s P/E ratio is in line, and even a little less, than big tech competitors Microsoft and Meta. And it’s far less than Amazon’s 106 P/E value.

Is Apple a Good Long-Term Stock?

Unlike Meta and Amazon, AAPL pays a dividend. The current dividend yield is 0.54%, with the stock paying out at $0.24 per share each quarter. While modest, it’s still another consideration for long-term investors, and the company has increased its dividend by 17% since late 2020.

Investors who are in it for the long haul should also be concerned about the highly competitive tech industry and the chance that Apple’s moat might shrink. But the company has continued to innovate, as evidenced by the recent announcement of the Apple Vision Pro. 

The company’s first spatial computer gives its users a new way to interact with Apple’s technology and a new platform for device and software sales. While most industry experts praised the Vision Pro’s groundbreaking technology, critics were daunted by the headset’s hefty $3,499 price tag. The device will hit the market in early 2024.

There are also high expectations for the new 15-inch MacBook Air and the iPhone 15 that should be announced in September. Given the company’s bright future, there’s a reason that Buffett has continued to buy (and hold) Apple stock.

How High Will Apple Stock Go?

Apple stock is up almost 40% year-to-date, trading at around $181. But the majority of analysts still believe the stock can go higher. Out of 45 analysts, 29 rate AAPL as a buy at this price, with 4 analysts forecasting that the stock will outperform the market. There are 14 hold ratings on AAPL.

The highest forecast has the stock jumping 32.5% to $240 over the next 12 months. The median forecast for the stock is $200, which would be a 10.4% gain from where the stock currently trades. 

There are 2 sell ratings, and one analyst predicts the stock will underperform the market. The most bearish forecast sees AAPL dropping 11.7% to $160 over the next 52 weeks.

Why Does Warren Buffett Like Apple Stock?

Warren Buffett has a sound strategy for picking his investments, and sticking to his philosophy has made him billions of dollars. He focuses on great companies that have strong management and a solid competitive moat. Then he buys those companies when their stocks are trading at a discount.

There’s little question that Apple checks all of the boxes for Buffett and for most investors. The main question is whether AAPL is trading at a bargain, or if the stock is approaching overvaluation.

While AAPL shares have charged back after a hard 2022, the stock has fallen around 8.5% in recent weeks. For investors who agree with Buffett’s philosophy, the dip could be a good time to take a position in Apple.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.