Warren Buffett's legendary for his ability to pick long-term stocks, so when he files his 13-F report with the SEC detailing his latest buys, investors are right to pay attention. His current 13-F report shows that the Oracle of Omaha continues to bet big on Apple Inc.'s (AAPL 1.66%) success. It also shows that his Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) took new positions in Synchrony Financial (SYF 2.25%) and Store Capital Corp. (STOR +0.00%). Is now the right time to be following Buffett's footsteps and buy these stocks for your own portfolio?
An even bigger bite of Apple
Warren Buffett was already one of Apple's biggest shareholders, yet he still increased his Apple stake in the second quarter, exiting June with a whopping 131 million shares worth about $20.8 billion (yes, billion).
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Why's the Oracle of Omaha so enchanted with this consumer technology Goliath? Perhaps it's Apple's fast-approaching next-generation iPhone.
Buffett first bought shares in Apple in early 2016 after shares dropped because of worry over slowing sales in China and fewer iPhone users upgrading their devices. He made those first buys when shares were trading below $100, so they've paid off handsomely. Apple's shares are trading at over $160 ahead of the company's iPhone release later this year.
Investors might have good reason to be optimistic that the next iPhone will include enough features to entice consumers to ditch their aging smartphones. Rumors are that the next iPhone will include never-before offered features like 3D sensing and an OLED display. 3D sensing technology has been around since the Wii and Xbox Kinect, but it's only now that this technology can be made small enough and efficient enough to be included in handheld devices. Similarly, OLED displays have been wowing TV viewers for years, however, it's only recently that OLED technology has advanced to a point where it can be included in mobile devices cost effectively.
Assuming rumors are correct and Apple unveils a feature-rich phone this fall, it could unlock a tidal wave of demand from consumers who have, until now, been satisfied owning devices that are one or two generations behind the times. In turn, those upgrades could drive sales higher across Apple's ecosystem by boosting demand for games, music, and videos.
Apple's opportunity is even more compelling when we consider that the company, while not firing on every cylinder in the past year, is still performing quite well. Last quarter, revenue was $45.4 billion and earnings per share was $1.67. Those results compared favorably to revenue of $42.4 billion and earnings per share of $1.42 in the year-ago quarter.
Apple shares could also benefit if sales of its other new products take-off. Earlier this year, it announced a premium product to compete against Google Home and Amazon Echo, and rumors are its next watch won't require tethering to an iPhone, something that could make it attractive to more people.
Overall, it appears to be a good time to be an Apple investor.
A crafty consumer credit play
Perhaps one surprise in Warren Buffett's latest 13-F report is a new stake in Synchrony Financial, a consumer credit company. Berkshire Hathaway amassed a $518 million position in Synchrony during the second quarter.
Unlike other consumer credit companies, Synchrony Financial, which was spun-off from GE in 2015, focuses on private label credit cards that bear the brand of businesses, such as retailers.
Buffett -- or possibly his portfolio managers Todd Combs and Ted Weschler, who typically manage smaller positions in his portfolio -- might have gone bargain shopping when Synchrony Financial's shares tumbled in April following larger than expected write-offs. About 30% of Synchrony Financial cardholders have credit scores south of 660. or levels associated with subprime lending.
Bad loans are concerning, but Synchrony's financials are on solid footing, and its valuation is attractive, suggesting that as long as the economy hangs in there, shares could head higher. Currently, Synchrony Financial trades at less than 10 times next year's earnings estimates and its price to book is 1.74. Its PEG ratio, a measure of P/E to future growth, is also attractive at just 1.27. To put those numbers in better perspective, consider that American Express is one of Buffett's biggest positions, and its forward P/E is 13.7, its price to book is 3.7, and its PEG ratio is 1.59. It probably doesn't hurt the case for buying Synchrony Financial either that its trailing 12-month operating margin is double that of American Express.
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Are profits in Store for this REIT?
Increasing interest rates have taken a little luster off REITs, yet as the industry has seen declines in share prices, Warren Buffett, or his team, have used the drop to gobble up nearly a 10% stake in Store Capital.
Store Capital specializes in leasing free-standing buildings largely to service-oriented businesses. Tenants, such as movie theaters, health clubs, and restaurants, sign long-term leases with built in rent increases, and tenants accept the responsibility of variable costs, such as property taxes, insurance, and depending on the lease, some maintenance.
Renting to service oriented businesses provides Store Capital with more insulation against the threat of e-commerce, which is drastically reshaping traditional brick-and-mortar real estate, including shopping malls. And lease terms that include rent escalators mean Store Capital receives a nice steady stream of ever-increasing cash flow that it can use to finance more projects and dividend payments.
So far this year, the company's plowed $600 million into acquisitions and it remains on target to spend $900 million on acquisitions this year. As for its dividend, its current payout and share price works out to a very respectable 4.8% yield. Combine a predictable stream of shareholder friendly revenue growth with a Treasury-beating dividend payout and you could very well have an excellent recipe for success.
