Almost Half of Warren Buffett-Led Berkshire Hathaway’s $358 Billion Portfolio Is Invested in Only 1 Stock
Given Warren Buffett’s world-famous reputation as one of the greatest investors ever, it’s no surprise that individual investors look at his company’s public equities portfolio to find stock market inspiration.
Take a peek at Berkshire Hathaway’s massive $358 billion portfolio, and you’ll quickly realize Apple (NASDAQ: AAPL) makes up 47% of the entire value of its holdings as of this writing. It’s not difficult to see why. Berkshire first started buying the iPhone maker in early 2016, and from the start of that year to now, the stock has skyrocketed 600%.
Let’s first look at the factors that drew Buffett to Apple. Then, we can figure out whether the shares are a smart investment today.
What’s there not to like about this business?
Warren Buffett has historically avoided businesses in the tech sector. However, he has made a few exceptions with Apple being the most notable. Apple is an incredibly powerful consumer electronics brand after all, and the Oracle of Omaha is very familiar with this key competitive advantage, as demonstrated by his other longtime holdings such as Coca-Cola.
Apple’s strong brand differentiates its products and services from competing offerings and allows it to charge premium prices. Buffett has said he believes the mark of a great business is the ability to raise prices — Apple certainly fits that description.
This leads to the next trait Buffett appreciates, which is Apple’s incredible financial profile. In fiscal 2015, the business reported an operating margin of 30% and generated $70 billion of free cash flow. Those strong profitability metrics prevail to this day, allowing Apple to repurchase much of its stock.
During the first quarter of 2016, when Buffett first started buying the stock, Apple’s price-to-earnings (P/E) ratio averaged just 10.6. In hindsight, that was a wonderful bargain for such a dominant tech company.
Is Apple a buy right now?
Apple’s past performance is nothing short of spectacular. Even in 2023, shares soared 48%, crushing the S&P 500. However, investors must understand that past performance does not guarantee future results. Consequently, it’s best not to assume Apple can keep rewarding shareholders the same way it has in the past. Instead, investors should view the stock with a fresh perspective.
One thing is becoming strikingly clear: Apple’s growth is slowing. Sales in fiscal 2023 (ended Sept. 2023) were down from the previous year, which is a rare occurrence. By depending heavily on the iPhone for its financial success, Apple is plateauing in a market where smartphone penetration already exceeds 85%. Many investors point to rising services revenue as the next big driver of the company’s future growth, but hardware, especially the iPhone, will remain a pillar of the business for many years.
So how much are you willing to pay for shares in a company posting declining revenue? As of this writing, Apple shares trade for 30.3 times earnings, a premium valuation that’s nearly triple what Buffett paid when he started his position — all for a company with much less growth potential due to it being in a more mature stage of its lifecycle.
Apple is not offering the same bargain Buffett took advantage of in 2016, and investors should understand this reality before taking on a similarly overweight position in the stock today.
Should you invest $1,000 in Apple right now?
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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.
Almost Half of Warren Buffett-Led Berkshire Hathaway’s $358 Billion Portfolio Is Invested in Only 1 Stock was originally published by The Motley Fool
