Legendary investor Warren Buffett invests in a range of companies through the company he runs, Berkshire Hathaway. With his well-known prowess for picking shares, Buffett’s moves are closely followed. Right now he holds one share I would consider adding to my portfolio today. Here’s why.
One reason I think I can learn a lot about share investing from Buffett is that he clearly and consistently explains his approach.
Buffett likes companies with strong brands because that gives them pricing power. By using the power of branding, such companies can build customer loyalty and charge premium prices. That is good for profits.
Buffett also likes fairly simple companies that are easy to understand. Instead of relying on unusual accounting practices or niche markets for their success, he looks for businesses with large potential customer bases that sell products or services with a straightforward business model.
Warren Buffett’s biggest shareholding
Those strategic investing principles help to explain Buffett’s largest position. With an outsized position in the Berkshire Hathaway portfolio, that position is Apple (NASDAQ: AAPL). I’d consider joining Buffett in adding the technology giant to my portfolio.
I think Apple matches Buffett’s investing criteria well. Its strong brand helps give it a sustainable customer franchise and massive pricing power. Last year, the company’s earnings from continuing operations came in at $57bn. In other words, this global giant made over a billion dollars a week in profits. That is an incredible performance. Apple has been paying dividends and buying back shares in recent years, so at least some of those profits find their way to shareholders.
Buffett did sell some of his Apple stake but it remains Berkshire’s biggest holding by far. So I think he has continued faith in the company and simply wanted to reduce the risk of his portfolio being too dominated by a single holding. After all, even with its incredible history of performance, Apple faces risks. Its strong market position could attract regulatory attention. That threatens to cut profits, for example, if Apple’s app store commission is deemed to be excessive.
Why I’d buy Apple today for my portfolio
Apple has had a superb few years. But some investors feel that its innovative days are gone and future returns could be weaker.
I don’t know if that is as big a risk as some Apple bears think. I still see reasons to consider adding it to my portfolio today. Its large installed base means it should be able to keep making large profits for many years to come. Pricing power should help support strong profit margins. Apple’s track record of understanding what customers want to buy suggests the business’s management can adapt to shifting trends in the market.
With a price-to-earnings ratio of 28, I think Apple is more attractively priced than many tech companies. A broad market pullback could cause the price to fall. But I don’t think the current Apple share price is expensive for a company of its quality. Like Warren Buffett, I would consider adding it to my portfolio today.
Christopher Ruane has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Apple and Berkshire Hathaway (B shares). The Motley Fool UK has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on 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.