Should You Buy Warren Buffett's Favorite Company?

There are a lot of lessons investors can learn from the Oracle of Omaha, Warren Buffett. His company Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) has been one of the best and most consistently performing stocks over the past 50 years, making money through insurance, railroads, and stock investing.

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When you look at Berkshire’s portfolio, there’s one company that looks like a clear favorite over any other it owns: Apple (NASDAQ: AAPL). Apple currently makes up an incredible 47% of Berkshire’s portfolio, while the next largest component only sits at 8%.

With that said, is Apple a stock you should consider buying right now? Let’s find out.

The iPhone has proven resiliency

If you’re an American consumer, Apple products likely need no introduction. Whether it’s a Macbook, AirPods, or the ever-popular iPhone, Apple products are everywhere and utilized by a large cohort of the population. For the first quarter of 2023, Counterpoint Research found 53% of smartphones sold in the U.S. were iPhones, increasing Apple’s market share by four percentage points from last year. With Apple holding 57% of the U.S. smartphone space as a whole and growing, it has a massive foothold in an important market.

It has also proven more resilient. In Q1, U.S. smartphone shipments were down 17% year over year. But don’t tell that to Apple. For Apple’s Q2 (ending April 1, which coincides with the calendar’s Q1), iPhone sales were up 1.4% to $51.3 billion.

While those two stats don’t directly correlate (shipment volume isn’t equal to sales volume), it shows Apple’s pricing power, as it can continue to charge a premium for its products despite falling demand. Pricing power is one of Buffett’s favorite business indicators. He once said: “The single most important decision in evaluating a business is pricing power.”

Those are powerful words of wisdom from a person who many consider to be one of the greatest investors of all time. But Buffett also is known to be a value investor, which seems to be at odds with Apple’s current status.

Apple’s stock is extremely expensive

When Berkshire first took a stake in Apple during Q1 2016, Apple was trading for a dirt cheap 10 times earnings. While it may seem like a no-brainer purchase looking back, it’s this buy that set up a company-defining investment. However, Apple’s stock is no longer anywhere close to that cheap.

AAPL PE Ratio

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AAPL PE Ratio

At 29 times earnings, Apple isn’t what anyone would consider a cheap stock. Combine that with falling revenue and earnings, and the stock starts to look a whole lot more expensive.

Although iPhone revenue was up, Mac, iPad, and wearables, home, and accessories were down. Even though these segments added together sum to less than half of iPhone sales, they are still important for Apple.

Until Apple’s stock returns to growth mode, it is a precarious investment, as there isn’t any growth to drive it. As to when that will be, I have no clue, as a recession has seemed imminent for the past year yet hasn’t surfaced.

But, one thing that will continue to prop up the stock is Buffett’s ownership and many investors’ decision to stick with the company no matter what. With a large cohort of investors who consider Apple a bedrock in their portfolio, it’s unlikely Apple will ever see a mass sell-off, even if the stock remains expensive. Because of that, I also don’t think it’s a wise decision to sell, either.

Apple stock is expensive and has no growth to show for itself, but its wide ownership makes it a stable company. Investors should continue to hold their shares unless they’ve found a more lucrative investment (of which there are plenty in today’s market).