Billionaire investor Warren Buffett is famous for his fondness for ‘wonderful companies’. He likes to invest in quality stocks that he can hold for a lifetime of market-beating returns. Of course, I’d like that too, and there’s one stock in his portfolio that I’m tempted to buy for my Stocks and Shares ISA.
Almost half of his portfolio
The stock I’m talking about is US tech giant Apple (NASDAQ: APPL), the largest company in the world by market cap with a valuation that surged past the $3trn mark only last week. It probably doesn’t need much in the way of introduction.
The interesting thing for me is just how invested Buffett is here. This isn’t a small part of a diversified portfolio, it’s a $151bn stake or 46% of his holdings. I can’t imagine the belief it must take to have nearly half your money in a single company.
Buffett obviously has huge faith that Apple will give him better returns than any other firm. That’s a nice starting point, but I’d like to delve a little deeper before I join him in owning a position here.
The sticking point
Firstly, I’m going to skim over the fact that this is a good company. I’m typing this on a Macbook and I have two more of its devices a few feet away. If buying a stock was the simple task of choosing the best products, well, Apple would be the biggest no-brainer buy of all time.
Rather, the sticking point here is the price. The stock surged yet again last week, now to an all-time high of $193. That alone isn’t putting me off though, it’s worth remembering that the best stocks tend to usually be near all-time highs. That’s just how it works when the line is going up.
The problem is that the firm trades at around 33 times earnings. That looks expensive compared to the S&P 500 average (22) and it looks like a complete rip-off compared to the humble FTSE 100 (14). One way of looking at this figure is that when I factor in the price, the amount of profit Apple earns is a lot less than other companies.
On the other hand, it’s in line with the tech sector. Facebook-owner Meta (36), Microsoft (33) or Google-owner Alphabet (27) all have high valuations. The thinking is, tech is the future. These firms will grow and justify those prices.
It’s true that Apple has a fabulous track record of growth. I remember thinking the Apple Watch was nothing special compared to its previous offerings. Well, it was worth $13bn in revenues last year.
The latest product to be released is the Apple Vision Pro – a new VR headset. I must say it’s hard for me to see it catching on as when I tried VR myself I found the experience awkward and unenjoyable. Then again, I was wrong about the Apple Watch. The device has a hefty $3,499 price tag too which could mean tons of profit if it takes off.
Am I buying?
The future is unpredictable, but it’s hard to argue that Apple won’t continue proving the doubters wrong. I think I’ll join Buffett and open a position in my ISA.
