Warren Buffett is one of the most successful investors of all time. He has made billions of dollars by following a simple investment philosophy: invest in companies with strong competitive advantages that are trading at fair prices.
One of Buffett’s favorite companies is Apple now represents an astonishing 51% of his entire stock portfolio. But, why does Buffett love Apple so much?
- Apple has a wide moat that gets bigger each day as more applications join its ecosystem
- Buffett managed to buy Apple at a lower price-to-earnings ratio before massive multiple expansion occurred.
- Apple has not only has enjoyed massive price increases since Buffett bought but also pays a dividend that reaches hundreds of millions of dollars quarterly.
Why Buffett Bet The Farm On Apple
Apple enjoys a strong competitive advantage, not least because of its loyal customer base that continues to show a willingness to pay higher prices from one year to the next without much, if any, churn.
The company has an enormous moat as a result of the ever-growing list of applications that it supports. Want to navigate Facebook? You need a phone. Want to get an Uber? You need a phone. And so on. And you’re left with two choices, Apple or Android. Over time, Apple has won market share to the point it technically now could be considered a monopoly. If there’s anything Buffett loves, it’s virtual monopolies.
In a recent interview, Buffett said that he believes Apple is “a wonderful company” and that he “loves the business.” He also said that he plans to continue to invest in Apple stock for the long term, which adds to the lore given he first bought the stock when it traded at a 10x PE multiple.
So, should you follow Warren Buffett’s lead and invest in Apple stock?
Why Buy Apple?
- Apple can technically be considered a growth stock because both profits and revenues are forecast to rise over time.
- Tim Cook’s tech behemoth is a relatively safe stock with a AA rating, sturdy balance sheet, and produces mountains of free cash flow.
- It is a dividend-paying stock that pays Buffett hundreds of millions of dollars in passive income each and every quarter.
The long and short of it is Apple is an excellent investment for investors who are looking for a long-term investment in a company with a strong competitive advantage, a dividend, and growth potential.
With that said, short-term the stock has been in a technical downtrend so risk-averse investors may wish to take a wait-and-see approach to find out how low the stock can go on this correction before starting a position.