Is it time to look again at the Apple of Warren Buffett’s eye?

So far I’ve resisted investing in Warren Buffett’s favourite stock. But have I left it too late to follow the lead of the American investor?

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In May 2023, Warren Buffett described Apple (NASDAQ:AAPL) as a “better business than any we own”. Attributing much of its success to brand loyalty, he also described the company’s boss, Tim Cook, as the “classiest CEO around”.

Over the past five years, these factors have helped Apple’s stock price increase by 317%.

At 31 December 2023, the stock accounted for 49% ($174.3bn) of the equity investments of Buffett’s investment vehicle, Berkshire Hathaway.

Like most investors, I’ve followed Apple’s success story with interest.

But I’ve always found a reason not to invest.

The stock has often looked expensive to me, which made me doubt that the bull run could continue. And I’ve been sceptical how the company could significantly increase its market share in a highly competitive industry.

But I’ve been proven wrong.

Golden delicious

In 2023, Apple overtook Samsung as the world’s biggest seller of smartphones. It ended a 12-year winning streak for the South Korean firm.

When previously considering whether to invest in Apple, I should have remembered one of the American billionaire’s most famous quotes: “Someone is sitting in the shade today because someone planted a tree a long time ago.

In other words, successful investing is about taking a long-term view.

I’ve been guilty of looking for the ‘next big thing’ when there’s plenty of money to be made from buying into established companies and holding their shares for several years.

Buffett wasn’t an early stage investor in Apple. It was nine years after the launch of the iPhone — in the first quarter of 2016 — before he decided to buy a stake. At the time, it was about to release its ninth iteration of the iconic product.

During the seven years before he invested, Buffett ‘missed out’ on a six-fold increase in the stock price. However, it’s grown over seven times since he took the plunge.

This tells me that it’s never too late to invest in a quality company.

Check out the pips

Instead of viewing Apple’s valuation with caution — it currently has a price-to-earnings (P/E) ratio of 28 — I should have acknowledged that it’s able to justify its worth because of its special products and long track record of growth.

However, towards the end of 2020, the company’s P/E ratio was in the mid-thirties.

Today’s lower valuation and the company’s most recent earnings update, tells me that now could be a good time to buy.

Revenue for 13 weeks to 30 December 2023 was $119.6bn. This is a 2% increase on the same period in 2022, which included an extra week.

Turnover from its service business (App store, music, and video streaming) was its highest ever.

This helped earnings per share increase by 16%, to $2.18.

Taking my first bite

Over the past 10 years, the compound annual growth rate of the stock has been 25%.

But I expect this to slow as the company matures. It’s also going to be difficult to continue to come up with innovative new products.

And although there’s no guarantee that history will be repeated, I think there’s a good chance that the company will continue to grow.

So I don’t think I’ve left it too late to invest.

I just need to find some spare cash to help me plant my first Apple tree.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

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