February 22, 2024

Brighton Journal

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Nearly 50% of Warren Buffett's $369 billion portfolio, led by Berkshire Hathaway, is invested in just one stock.

Nearly 50% of Warren Buffett's $369 billion portfolio, led by Berkshire Hathaway, is invested in just one stock.

Berkshire Hathaway, which deals with various industries, including insurance, railways and energy, also holds a huge portfolio of public stocks. Individual investors search this list of holdings to find potential opportunities.

It's hard to ignore that apple (Camel -0.90%) It represents nearly half The portfolio led by Warren Buffett. This investment has worked very well, as the iPhone maker's shares have risen about 640% since the beginning of 2016, at a time when Berkshire Hathaway first started buying shares.

Investors can gain insights by knowing what characteristics first piqued Buffett's interest when it comes to Apple. By looking at things as they are today within a long-term time horizon, we can reach a conclusion about this summit Fang sharesWorth the investment now.

A no-brainer purchasing decision

Berkshire Hathaway's portfolio includes well-known companies such as American Express, coca colaAnd Kraft Heinz. What all of these companies have in common is a strong brand. This has been Apple's main competitive advantage for a long time, and this is probably what Buffett noticed when he started buying shares.

The consumer electronics industry is usually a difficult industry to achieve lasting success in due to intense competition and price pressure. Apple is unique in its ability to buck this trend and demonstrate its pricing power. The company sells its hardware products at premium prices, which consumers are willing to pay. This explains why Apple gross profit margin It has averaged 41% in the past five years.

Past and current leaders, from Steve Jobs to Tim Cook, have done a great job keeping the Apple brand strong. I think this gives Buffett confidence that the business will be dominant in the future.

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The Oracle of Omaha – as Buffett is known – was certainly impressed by Apple's financial situation. This is one of the most profitable companies on the planet. Its operating margin has consistently been more than 24% in each of the past 10 fiscal years. And the company Return on invested capital 56.9% indicates the presence of exceptional work financially.

Before investing in a stock, Buffett wants to know whether the company in question will have materially higher profits in the future. Between fiscal years 2016 and 2023, Apple's net income increased at a compound annual rate of 14.7%. Based on this track record, it is difficult to envision a scenario in which the bottom line does not continue to expand in the coming years.

Perhaps the most important factor that encouraged Buffett to make the decision to add these technology stocks to Berkshire's portfolio was their ridiculously cheap valuation. During the first quarter of 2016, Apple shares traded at an average price-to-earnings (P/E) ratio of 10.6. Based on brand recognition and impressive financials, this valuation made the stock an easy buy at the time. That's why Buffett took advantage of this opportunity.

Apple over the next decade

Before you rush to add Apple to your portfolio, it's a good idea to look at the business from a fresh perspective. Ultimately, investors need to know if Apple can outperform Standard & Poor's 500 We look towards the next a contract.

To be honest, I have no confidence in this outcome. One reason is the slowdown in the company's growth. Apple reported a 2.8% revenue decline in fiscal 2023. The weak economic backdrop is partly to blame, but this may also show that the company is in a much more mature stage of its life cycle.

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I also think valuation is too expensive right now. Its P/E is currently around 32, which is roughly three times more expensive than it was when Buffett first bought it.

Obviously, my view that the stock will likely underperform the broader index in the future may be incorrect. But based on where things stand today, I don't think Apple is a smart investment for long-term investors.

American Express is an advertising partner of The Ascent, a Motley Fool company. 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 Kraft Heinz. The Motley Fool has a disclosure policy.