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This Stock Is Warren Buffett's Largest Holding -- By Far

By Daniel Sparks – May 28, 2020 at 6:11AM

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Should you buy shares of this company, too?

With a portfolio worth more than $200 billion, you would think Berkshire Hathaway (BRK.B -0.28%) (BRK.A -0.22%) Chairman and CEO Warren Buffett maintains a significant level of diversification. But this is far from the case. In fact, about two-thirds of his portfolio is in just four stocks. Even more startling, about 40% of his portfolio is in only one stock. Further, this holding is larger than his next five largest positions combined

What is this stock that Buffett is betting so heavily on? None other than tech giant Apple (AAPL -1.51%). The investor's position in the iPhone maker is worth nearly $80 billion and represents a 5.8% stake.

Here's a closer look at Buffett's Apple investment -- and why investors may want to consider investing alongside the Oracle of Omaha on this one.

A person pointing at a light bulb

Image source: Getty Images.

"It's probably the best business I know"

You don't have to look far to see how fond Buffett is of Apple. Anytime he's asked about the company during interviews, he speaks about how excellent the business is, and he even pointed out last year that any of Berkshire's sales of the stock were not made by him but instead by one of his investment lieutenants, each who manage a small portion of Berkshire's total portfolio. 

More recently, Buffett called Apple "probably the best business I know in the world." He proceeded in the February CNBC interview to explain that Berkshire's commitment to the stock is so significant that he doesn't think of Apple as a stock. Rather, he thinks of it as Berkshire's third-largest business behind its insurance and railroad subsidiaries, he explained.

A wonderful business at a fair price

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price," Warren Buffett has said. Apple falls under this investment parameter perfectly. Sure, shares aren't cheap, at 25 times earnings, but this is arguably a conservative price to pay for a business as excellent as Apple.

As a fair warning, investors should expect Apple's business to face some headwinds in the near term as the company works through the unique challenges created by COVID-19. Indeed, the company's revenue growth slowed to a crawl (up 1% year over year) in fiscal Q2 as Apple was dealt a blow from the impact the virus had on the global economy. Further, the tech company refrained from providing guidance for fiscal Q3, citing economic uncertainty and a lack of visibility into how its business will fair in the near term. 

But as the economy reopens, Apple will likely return to meaningful top- and bottom-line growth. Before COVID-19 sent the economy reeling, consumers were showing a strong appetite for Apple's products. In addition, Apple's services business looks poised to remain a major catalyst for the tech giant. Services revenue rose 17% year over year in fiscal Q2 -- and growth will likely remain strong in fiscal Q3, fueled by strength in the App Store as consumers sheltering at home increased their internet usage.

Warren Buffett at a Berkshire Hathaway annual shareholder meeting

Image source: The Motley Fool.

Should you buy Apple stock, too?

There's good reason for investors to pay attention to what stocks Buffett is invested in. The famed investor has quite a track record. Helped by the Oracle of Omaha's stock-picking prowess, as well as his ability to find great companies to buy outright, Berkshire Hathaway's stock has risen at an average rate of about 20% annually since 1965. Over this same timeframe, the S&P 500 compounded at an average annual rate of 10%. 

Further, this isn't your average Buffett investment. His bet on the stock is enormous, accounting for about 40% of Berkshire's stock holdings. This suggests the famed investor is highly confident in Apple's long-term success.

Buffett, of course, is human. He is wrong from time to time. There's no guarantee, therefore, that Apple stock will pan out to be a great investment -- or even a good one, for that matter. But given the stock's reasonable valuation relative to Apple's long history of growing its earnings per share, and in light of the company's loyal customer base today, Buffett looks like he's onto something with Apple.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$150.43 (-1.51%) $-2.31
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$404,485.25 (-0.22%) $-889.76
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$267.77 (-0.28%) $0.74

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