If there’s one stock that Warren Buffett loves, it’s Apple (NASDAQ: AAPL). At present, the stock market guru has over 40% of his portfolio invested in the iPhone maker.
While I’d never invest 40% of my portfolio in Apple, I do see the stock as a bit of a ‘no-brainer’. Here’s a look at three reasons I’d follow Buffett and buy Apple shares for my portfolio today.
Why I’d buy this Warren Buffett stock today
One reason I see Apple as a great long-term investment is that the company has a number of competitive advantages.
Its strong brand is one. According to Kantar, Apple was the second most valuable brand in the world last year (behind Amazon). Ultimately, its brand power keeps consumers coming back for more. When consumers think of Apple, they think of quality, reliability, innovation, and performance.
Another competitive advantage comes from the ecosystem it has built. The beauty of Apple’s products is that they all connect to each other. For example, my iPhone is connected to my Mac, which is connected to my MacBook. This ecosystem means consumers are less likely to switch to a rival’s product. Warren Buffett has stated that one of the key reasons he invested in Apple is because of the value of its ecosystem and “how permanent that ecosystem could be”.
Long-term growth potential
Another reason I like Apple is the growth the company is generating.
Despite already having a high market share of the smartphone market (nearly 50% in the US), Apple is still growing at an impressive rate. In the last quarter of 2021, for example, revenue grew by 11%. Growth was boosted by its services division (iTunes, the App Store, Apple Music, iCloud, Apple Pay) which saw revenue growth of 24%.
Looking ahead, I see the potential for further growth. One area that could generate solid growth for the company is payments. Another is healthcare.
“If you zoom out into the future, and you look back, and you ask the question, ‘What was Apple’s greatest contribution to mankind?’ It will be about health,” said CEO Tim Cook in 2019.
Defensive in nature
Finally, while Apple is a growth stock, it’s actually quite ‘defensive’ in nature. For starters, it has a strong balance sheet and a huge pile of cash. At the end of 2021, it had around $64bn in cash on its books. Second, it continues to generate a ton of cash and pay regular dividends to shareholders. Third, it’s buying back its own shares. Over time, these buybacks are likely to push its earnings per share up.
I’ll point out that, as a tech stock, it’s not as defensive as some other stocks. Its share price can be volatile at times. However, overall, it offers a nice mix of offence and defence, to my mind.
I’d buy this Buffett stock today
Of course, like any stock, Apple has its risks. One is its valuation. Currently, Apple has a forward-looking P/E ratio of around 29. I wouldn’t say that’s overly high, but it probably doesn’t leave a huge margin of safety. If future earnings are disappointing, the shares could experience a pullback.
Technological disruption is another risk to consider. Apple will need to keep innovating if it wants to keep growing.
All things considered, however, I think the long-term risk/reward proposition here is attractive. That’s why I’d buy this Warren Buffett stock today.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Edward Sheldon owns Amazon and Apple. The Motley Fool UK has recommended Amazon and Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
This post was originally published on Motley Fool
