Warren Buffett is Bullish on Apple, Should Investors Be?

apple-aapl-logoFrom Zacks Research: With Warren Buffett’s company disclosing a massive new investment in Apple Inc. (NASDAQ:AAPL), many investors are wondering if they should follow the venerable oracle into a larger position as well.

Berkshire Hathaway Inc. (BRK.BAnalyst Report) raised its stake in Apple (AAPLAnalyst Report) by 55% to 15.23 million shares as of June 30.  About 3 months ago, the firm held close to 9.8 million AAPL shares which were purchased at an average price of about $109 per share.  Warren Buffett, founder and CEO of Berkshire Hathaway, is commonly regarded as one of the greatest (if not the greatest) investors of all time.  It should be noted, however, that it wasn’t Buffett’s decision to initiate the first purchase of Apple shares 3 months ago.

Warren Buffett favors a value-oriented mentality when it comes to investing, so it should not come as a large surprise that his firm picked up more shares last quarter.  After all, Apple’s share price trended down since Berkshire’s last purchase, and value investors love buying beaten-up shares in companies they own.  They do this because of their strong belief in the long term potential of their investments.  Berkshire Hathaway seems confident enough to double down on Apple, so should you follow suit and pick up some AAPL shares?

Long Run

For long term investing, it is hard to argue a case against Apple.  There are weaknesses, like the strong reliance on its iPhone to drive revenue numbers and growing competition on the smartphone front as Samsung (SSNLF) keeps finding ways to test the limits of modern technology.  It should be noted, however, that Apple commands a strong user base with unparalleled brand loyalty.  Many iPhone users don’t just buy the phone for its hardware specs, but because it is simply the iPhone.  Fans of the brand refuse to use a platform that isn’t running on IOS.  This is a key aspect of the Apple brand which no other Android product has, and it will be a major key with regards to retaining its loyal user base.

Also, Apple’s services have done well in showing growth potential, and in the company’s recent Q3 earnings report, Services grew by 19% year-over-year and App Store sales came in at the highest they’ve ever been.  Services include sales from Internet Services, AppleCare, Apple Pay, licensing, and other services, and they accounted for 14% of Apple’s revenues in the third quarter.

In addition to its core base, Apple is seeking to keep innovating by investing money in several ventures such as an Uber competitorvirtual realityautonomous drivingmobile paymentsmusic, and more.  Although the company has hit a growth slump, it should be able to make up for that by diversifying revenues and investing in new technologies.

Bottom Line

Apple is trading for close to $110 right now, and it does look pretty cheap on the valuation front.  The stock trades at a forward PE of 13.08, and it has a pretty tame PEG of 1.51.  The company is a Zacks Rank #3 (Hold), so you may want to wait for the earnings outlook to pick up in the short term before buying shares.

Apple shares rose $0.46 (+0.42%) to $109.94 in premarket trading Tuesday. The world’s largest computer and mobile device maker’s stock has gained 4% year-to-date, compared with a 7% rise in the benchmark S&P 500 during the same period.


This article is brought to you courtesy of Zacks Research.

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