We recently compiled a list of the 12 best long-term stocks to buy according to Warren Buffett. In this article, we are going to take a look at where Apple Inc. (NASDAQ:AAPL) stands against the other long-term stocks to buy according to Warren Buffett.
Warren Buffett, the most famous investor on Wall Street, needs no introduction, having generated billions of dollars for himself and investors for decades. Throughout his investment career that began in 1965, the ‘Oracle of Omaha’ has averaged annual returns of 19.8%, trumping a gain of 9.9% for the S&P 500 over the same period.
The market-beating performance has propelled Buffett to the top of the charts as one of Wall Street’s most revered and followed investors. His investment portfolio is always tracked as investors scan for potential market opportunities.
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Likewise, Buffett is one of the most successful investors in Wall Street’s history, having accumulated a fortune of $138 billion. His total assets might have been significantly higher if he hadn’t donated large sums to different charitable causes.
Market participants have always applauded his disciplined approach, which entails a long-term perspective. His investment firm has become the latest company to cross the $1 trillion mark on market cap, underlining Buffett’s impressive stock-picking skills. According to Cathy Seifert, Berkshire analyst at CFRA Research, the $1 trillion milestone is a testament to Buffet’s investment firm’s financial strength and franchise value.
Buffett’s investment strategy has remained constant throughout his career, focusing on the concept of value investing. The strategy focuses on identifying companies that are undervalued but have the potential to increase in value over time. Buffett seeks out companies with a lasting edge over competitors, like a well-established brand, high barriers to entry, and a large and loyal customer base, and he buys into them at a price that ensures a safety margin.
Likewise, the billionaire investor is well-known for his cautious stance on investing in high-risk, high-reward sectors like technology. Instead, he prefers to invest in more stable sectors such as retail, insurance, and finance. He is recognized for his commitment to long-term investments, holding onto companies for extended periods, and steering clear of frequent trading. This strategy enables him to benefit from the compound interest effect and allows the companies he invests in to mature and produce significant profits.
Buffett’s cautious approach is evidenced by the fact that his investment firm had over $180 billion in cash as of the end of the first quarter. The cash reserves were expected to swell to over $270 billion as of the end of June.
The cash reserves have been building up as the billionaire investor only invests in finding attractive deals with eye-popping returns. In a 2023 letter to shareholders, Buffett reiterated he did not see the possibility of eye-popping performance.
Buffett has consistently included dividend stocks in his portfolio, which is a strategy that has effectively generated consistent passive income. This year alone, his investments are projected to generate around $6 billion in dividend earnings.
Nevertheless, Buffett has also been in defensive mode in recent months, opting to reduce stakes in some companies. He has trimmed holdings by up to half in some tech giants, concerned by valuations getting out of hand after a year of gains fuelled by the artificial intelligence frenzy.
While valuations have gotten out of hand going by the blockbuster gains over the past year, there are still opportunities to unlock. With the US Federal Reserve poised to end its monetary easing spree with a cut of interest rates, equity is poised to receive a significant boost.
The best long-term stocks to buy, according to Warren Buffett, are companies well poised to benefit from interest rates dropping. Low interest rates make it easier for companies to access cheap capital to accelerate their operations, generating more shareholder value.
Our Methodology
To compile our selection of the best long-term stocks to buy according to Warren Buffett, we began by analyzing Berkshire Hathaway’s 13F portfolio and chose to highlight the stock holdings that have remained within the portfolio for at least 5 years. Next, we assessed the number of hedge fund investors associated with each stock, as of the end of the second quarter of this year. Finally, the stocks were ranked in ascending order based on the value of Warren Buffett stakes in the companies.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A wide view of an Apple store, showing the range of products the company offers.
Apple Inc. (NASDAQ:AAPL)
Warren Buffett’s First Major Purchase: 2016
Berkshire Hathaway’s Latest Investment Stake: $84.25 Billion
Number of Hedge Funds Holding Stakes as of Q2: 184
Apple Inc. (NASDAQ:AAPL) is one of the best long-term stocks to buy, according to Warren Buffett, a consumer tech giant. The company is engaged in developing and selling an array of devices, including iPhones, iPads, and Mac’s wearables, among others.
The company’s competitive edge stems from its game-changing devices and solutions that have propelled it to a three trillion dollar empire. Recently, the company unveiled the iPhone 16, a new device expected to reinvigorate growth in its slowing iPhone business. The company is also betting on artificial intelligence as it aims to strengthen its product pipeline to attract more sales.
Analysts have touted the new iPhone as a product that could be the most successful iPhone yet, likely to generate more value. Apple Inc. (NASDAQ:AAPL)’s revenue growth in the past year, up to the third quarter of 2024, has been relatively slow, increasing by just 0.43%. However, there was a significant jump in earnings during the third quarter of 2024, with a notable quarterly increase of 4.87%. This suggests a consistent financial path, though, with a moderate pace of growth.
After rallying for the better part of the year, Apple Inc. (NASDAQ:AAPL) is not necessarily cheap, as it trades at a price-to-earnings multiple of 29. Nevertheless, the premium valuation is expected of a three trillion dollar company that is poised to generate significant value.
Apple remains Buffett’s biggest holdings despite downsizing his stakes by up to 56% in the first two quarters of the year. The oracle of Omaha sold roughly 510 million shares in the tech giant. Nevertheless the company still accounts for about 40% of the portfolio.
It remains one of Buffett’s longest investments owing to the fact that it pays a dividend with a yield of 0.45%. Additionally, the company returns value through stock buybacks. By June 2024 end, 184 out of the 912 hedge funds profiled by Insider Monkey were the firm’s investors. Apple Inc. (NASDAQ:AAPL)’s largest shareholder is Warren Buffett’s Berkshire Hathaway, whose $84.25 billion stake also makes the stock the biggest in Berkshire’s portfolio.
Here is what Mar Vista Focus strategy said about Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter:
“Investors were reminded of the strength of the Apple Inc. (NASDAQ:AAPL) ecosystem as management demonstrated how generative AI solutions would be integrated into Apple’s 1.2 billion iPhone installed base. Apple plans to integrate generative AI features into its iOS 18, which will be broadly released in the fall with the iPhone 16. We believe Apple should benefit from generative AI as it will spur a meaningful iPhone upgrade cycle and create new avenues of monetization through its app store and advertising offerings. We believe this will support intrinsic value growth that will range between high-single-digits and low-double-digits over our investment horizon.”
Overall AAPL ranks 1st on our list of the best undervalued cyclical stocks to buy. While we acknowledge the potential of AAPL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AAPL, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.