Berkshire Hathaway, the conglomerate ran by the legendary investor Mr. Warren Buffett, has been running for ~60 years. The company continues to own a lot of different stocks over past couple years. While stocks didn’t work out, the ones which did turned out to be multibaggers.
Apple Inc. has been one of the best investments of Mr. Buffett in recent years. The legendary investor first bought a stake in the tech giant in 1Q16. We all know Mr. Buffett is known for picking value stocks which have the potential to deliver strong returns in the long-term. Just to let our readers know, the value stock means a stock of the company which trades at the lower price as compared to its fundamentals, including dividends, earnings, or sales. This makes the stock appealing to the value-investing community.
While Apple has been his successful investment, there are some points which investors should focus on before they decide to go long on this tech giant.
Warren Buffett takes bet on Apple, Inc
It’s quite easy to see why Mr. Warren Buffett decided to make his bet in the shares of Apple, Inc. The company sells some of the most in-demand products and The Oracle of Omaha likes to buy shares of the companies which please their customers. For example, iPhone, continues to attract customers from all over the world and the company tends to launch upgrades on the regular basis. It came to Buffett’s realisation that Apple can be accurately assessed if he views this as a consumer brand and not as a tech business. Apple’s economic moat comes from the company’s strong brand recognition and brand recall.
Apart from analysing these factors, Mr. Warren Buffett took a look at the company’s leadership team. After the passing of Steve Jobs in 2011, global investors thought that Tim Cook will not be able to run the show as good as Steve Jobs. But I guess we all were wrong. This has been agreed by Mr. Warren Buffett too.
How much heat is left in this tech giant?
Apple, Inc. currently has a market cap of over ~$2.5 trillion, and the stock continues to trade at trailing P/E ratio of ~29x. This means that the stock is selling at the much higher premium than when Mr. Warren Buffett invested in it. That being said, Berkshire continues to hold the position. That’s probably because of the monster dividends that the company pays to its shareholders.
If you are planning to invest in Apple right now, there are some facts you should get straight. There are high chances that individual investors might not see significant returns which Buffett saw. However, the story will be different if the company introduces a game-changing product or service.
Before going long on Apple, Inc., let us understand the company’s financials.
In early August, the company released its results for the third quarter ended July 1, 2023. It saw quarterly revenue of $81.8 billion, exhibiting a decline of 1% year-over-year, and its quarterly earnings per diluted share came in at $1.26, a rise of 5% year-over-year. It saw an all-time revenue record in Services during 3Q because of over 1 billion paid subscriptions. There was continued strength in the emerging markets because of strong sales of iPhone.
Source: Apple.com
The company’s June quarter year-over-year business performance saw an improvement against the quarter ended March and its installed base of active devices touched all-time high in every geographic segment. In 3Q, it generated very strong operating cash flow of $26 billion, and returned more than $24 billion to its shareholders. Apple was able to invest in its growth plans too.
Net sales of iPhone decreased during 3Q23 and 9M23 in comparison to the same periods of 2022 mainly because of lower net sales from some iPhone models. This was partially offset by increased net sales of iPhone 14 Pro models.
Net sales of wearables, home and accessories grew during 3Q23 against 3Q22 as a result of increased net sales of Wearables, including AirPods®, Apple Watch® and Beats® products, partially offset by the decreased net sales of accessories.
Services net sales went up in 3Q23 in comparison to 3Q22 because of higher net sales from advertising, cloud services and the App Store®.
Products gross margin percentage saw a growth in 3Q23 in comparison to 3Q22 mainly because of cost savings and the different Products mix. This was partially offset by weakness in foreign currencies in relation to the U.S. dollar and decreased leverage.
Americas net sales saw a degrowth in 3Q23 and 9M23 in comparison to similar periods in 2022 mainly because of lower net sales of iPhone and Mac, partially offset by increased net sales of Services.
Why should you invest in Apple Inc?
Davis R M Inc. reduced its holdings in Apple, Inc. by 1.4% during the first quarter, as per the most recent Form 13F filing with the SEC. The company owned 1,150,776 shares of the tech giant after selling 16,053 shares. Apple constitutes ~4.8% of Davis R M Inc.’s portfolio, which makes the stock its largest holding. The company’s holdings in Apple came at $189,763,000 according to the recent SEC filing.
Apple’s Senior Vice President Deirdre O’brien decided to sell 15,419 shares of the company’s stock on 7th August at the average price of $178.56, for the total transaction value worth $2,753,216.64. Post this sale, SVP now holds 136,445 shares in the company worth $24,363,619.20.
Brokerage house Morgan Stanley reduced their price objective on the shares of Apple from $220.00 to $215.00, giving an “Overweight” rating on the stock on 4th August. UBS Group downgraded the shares of the company from “Buy” to “Neutral” rating, while the brokerage giant has upped their price target for the stock from $180.00 to $190.00 on 12th June.
Piper Sandler increased their price target on the stock from $180.00 to $220.00, giving Apple, Inc. an “Overweight” rating on 31st July. Lastly, Loop Capital downgraded the shares of Apple from “Buy” to “Hold” rating. The investment firm has set the price objective of $180.00 in the research report.
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