I always look to Warren Buffett for inspiration when picking stocks for my own portfolio. With the benefit of hindsight, it’s easy to admire the billionaire’s skill at identifying promising value investment opportunities. A good example is his substantial purchase of Apple (NASDAQ: AAPL) shares in 2017.
Despite having a longstanding aversion to tech stocks, five years ago the Oracle of Omaha doubled down on the world’s most valuable company. Berkshire Hathaway increased its stake to 134m shares, up from the 57.36m it held in 2016.
So, how much would I have today if I’d invested £1,000 in Apple half a decade ago?
Five-year returns
First, let’s examine the dramatic increase in the Apple share price over the past five years. At a whopping 275%, I’d have made a handsome return. My initial £1,000 investment would have ballooned to £3,750 today. For context, the S&P 500 only managed a 47% gain over the same time period and the FTSE 100 suffered a 7% loss.
But share price gains are not the full story. The company has also distributed dividends over this time period. Admittedly, the annual yield hasn’t been huge — it ranges from between 0.6% and 1.4% over the past five years. However, it’s notable that other tech titans, including Alphabet, Amazon, and Meta, don’t offer dividends at all.
Following a dividend reinvestment plan, my total return from holding Apple stock for five years would be just above £3,952 today, nearly quadrupling my original investment!
What did Warren Buffett do with Apple stock?
Over the past half-decade, Buffett has consistently bought Apple stock. Admittedly, in 2020, the legendary investor sold some of his position as the pandemic struck. However, this year Berkshire Hathaway has returned to form, scooping up millions of additional shares over the first two quarters.
It’s probably the best business I know in the world.
Warren Buffett on Apple
Today, the company represents roughly 40% of Berkshire’s portfolio — its largest stock market holding. Buffett has consistently heaped praise on the business over the years. He has described the iPhone as “enormously under-priced” and championed its status as a ‘sticky’ product that keeps consumers within Apple’s ecosystem.
More recently, it’s been a turbulent ride. Heavy selling in US markets has seen $36bn wiped off Berkshire’s stake in 2022 with the stock tumbling 20%. Nonetheless, the fact that Buffett has been taking a further bite of the Apple with his share purchases this year suggests the investor sees fresh value in his favourite stock.
Would I buy today?
I’ve been reluctant at times to invest in Apple, wary of the fact that the stock is often reaching new all-time high prices. The prospect of heightened downside risk by investing in the company at sky-high valuations has dissuaded me from entering a position thus far.
Today, the situation is a little different. A big drawdown in Apple shares during the bear market stateside makes the risk/reward profile more attractive in my view. A more reasonable current price-to-earnings ratio just above 24, when compared to its historical average, looks appealing.
Despite the risk of further pain ahead if the US economy enters a recession, I’d follow in Warren Buffett’s footsteps and buy Apple stock today.
