Warren Buffett's stock-picking prowess is the stuff of legend, and that makes him one of the most widely followed investors on the planet. Fortunately, investors like Buffett need to report their buying activity to the SEC every quarter, and that means that you can piggyback on his picks.
Warren Buffett's biggest bet last quarter
Warren Buffett's Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) manages a portfolio of stocks valued at a whopping $132 billion, which means that if he wants to make an impact on his returns, he needs to bet big. That's exactly what he did last quarter when he plowed hundreds of millions of dollars more into Apple Inc. (NASDAQ:AAPL), the consumer electronics giant.
Buffett bought a big stake in Apple during the first quarter, and in the second quarter, Buffett's trusted portfolio managers Ted Weschler and Todd Combs increased their Apple position by 55%. Berkshire Hathaway now owns 15.2 million shares of Apple worth more than $1.6 billion, making Apple Warren Buffett's 14th biggest holding in just two quarters.
Why is Buffett such an Apple fan? It's not likely that it's because of Apple's 2.1% dividend yield. Buffett's said in the past that he prefers companies that invest their money in projects that lead to future growth, not dividend payouts.
Instead, Buffett's bet on Apple is likely tied to his love of buying great companies, run by top-tier leaders, on the cheap. Apple remains a dominant consumer electronics giant, CEO Tim Cook is one of the best in the industry, and Apple's share price has fallen considerably in the past year.
That could be a winning recipe if Apple can kick-start its top- and bottom-line growth. The company's sales are struggling right now, but it's not a stretch to think that Apple can regain its footing. Sluggish sales are the result of consumers holding off on upgrades, and that's not going to last forever.
Industry watchers appear to agree. Despite the company's struggles, analysts expect Apple's earnings per share to climb to $8.91 next year from $8.26 this year. That means that Apple shares can be bought at a forward P/E ratio of only 12.2. That seems like a good bargain to me, too.
Staying the course
Warren Buffett jettisoned the majority of his oil and gas positions last year, but he's decided to ramp up his exposure to Phillips 66 (NYSE:PSX), an oil and gas transport, storage, refining, and marketing company.
Buffett owned 55.4 million shares of Phillips 66 -- 10.5% of the company -- exiting December, 75.6 million shares exiting March, and 78.8 million shares exiting June.
Admittedly, the pace of his buying has slowed, but his commitment to the company remains impressive. Phillips 66 is Berkshire Hathaway's sixth-biggest position.
Buffett's interest in Phillips 66 probably stems from the fact that the company doesn't need oil and gas prices to rally to turn a profit. The company makes a lot of its money from long-term transport and storage contracts, and it profits from the spread between what it pays to buy oil and gas and what it charges end users of refined products, such as gasoline and chemicals.
Although Phillips 66 isn't immune to the oil trade's whims and whispers, it delivered $385 million in earnings in the first quarter and $496 million in the second quarter of this year. That's not too shabby, given how tough the market for oil and gas has been during that period.
Obviously, no one -- not even Buffett -- knows when oil and gas prices might recover to their old highs. But since this company has proven it can profit in tough times, you can't blame Buffett for being smitten.