Warren Buffett currently has a net worth of over $100bn, making him the sixth wealthiest person in the world. But this has not happened by luck. Instead, Buffett is renowned for picking out value stocks with tons of potential. Famous examples include his investments in United Parcel Service in 2006 and Coca-Cola in 1987. But one of his most successful investments is Apple (NASDAQ: AAPL), which has soared around 400% since he started investing. Recently, it was disclosed that he bought another $600m worth of Apple shares as the stock dipped in the first quarter of 2022. After its recent dip, I’d do the same.
Every year, Apple has continued to impress, which has cemented its mega-cap status (a valuation of over $200bn). For example, in FY21, Apple recorded net sales of $365bn, a 33% increase year-on-year. Operating income also soared, reaching a record $109bn, a 64% increase. Such results meant Apple was able to reach the $3trn valuation mark, making it the most valuable company in the world at the time. It has since dropped back to a valuation of ‘only’ around $2.5trn however, being eclipsed by Saudi Aramco as the most valuable business globally.
This drop has partly been due to mildly disappointing forward guidance for the third quarter as the tech giant expects a revenue hit of around $8bn resulting from component shortages and Covid-related plant closures in Asia.
Macroeconomic uncertainties are also burdening the business. For example, higher interest rates are likely to make it more expensive for it to borrow, a factor that could depress growth. Soaring inflation is also causing problems, as Apple is having to raise wages for its workers. This may strain profit margins, a factor that could hurt Apple’s stock price.
Why would Warren Buffett still buy?
These are clearly major problems, so it may be surprising to see Warren Buffett buying more. However, I can think of many reasons why he’d do that.
First, Apple is still in a dominant position and in the Q2 results, it reported a 9% surge in revenues to $97.3bn. This was also accompanied by a very healthy profit of $25bn. Both these figures were higher than expected, demonstrating that growth rates remain strong.
In addition, Apple is continuing with its major share buyback programme and has authorised an additional $90bn. This is well covered by operating cash flow, and as it reduces the amount of outstanding shares, it increases individual ownership. This is a big reason for the continued general strength of the Apple share price. It’s also a primary reason, I feel, for Warren Buffett continuing to invest in the company.
What am I doing?
I already own a small stake in Apple, and after dipping nearly 20% since its highs in March 2022, I’m tempted to build on this stake. After all, it’s up over 20% in 12 months and the company’s dominance is too tempting. The issues facing the firm right now seem short term to me. I believe that Apple stock can continue its long-term outperformance.