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Is This the Best Warren Buffett Stock to Buy in 2022?

By Harsh Chauhan – Jan 12, 2022 at 8:50AM

Key Points

  • Warren Buffett's bet on Apple stock has paid off nicely over the years.
  • Apple's 5G dominance and the massive iPhone upgrade cycle will be catalysts for the stock in 2022.
  • Apple's services business looks set to head higher this year thanks to expansion into new markets.

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The Oracle of Omaha has won big from this 2016 pick.

Apple (AAPL 1.56%) has turned out to be a hugely successful bet for Warren Buffett over the years as Berkshire Hathaway's investment in the iPhone maker has jumped significantly.

The Oracle of Omaha picked up a 5% stake in Apple in 2016 for $36 billion, which is now worth more than $160 billion thanks to the tech titan's rally over that time. As it turns out, Apple now accounts for more than 40% of Berkshire's equity portfolio, with an Edward Jones analyst dubbing it one of the best investments Buffett has made in the last 10 years. That's especially true considering that Berkshire gets an estimated $775 million in average annual dividends from its Apple stake.

Person looking at a financial chart on a smartphone.

Image source: Getty Images.

Apple can continue to reap rich rewards for Buffett, as the tech giant's growth has switched into a higher gear since the launch of 5G-enabled iPhones. More importantly, Apple can sustain its impressive momentum in 2022, as it is rumored to be activating a new set of catalysts in 2022 that make it one of the top Buffett stocks to buy this year. Let's take a closer look.

Apple looks set to cast a wider net on the 5G smartphone opportunity in 2022

Apple led the 5G smartphone market in the third quarter of 2021 with a share of 25%, according to Strategy Analytics. It is worth noting that Apple has dominated the 5G smartphone market quarter after quarter since the launch of its first 5G-enabled device in the form of the iPhone 12. The good part is that the demand for 5G iPhones remains strong thanks to a massive installed base of customers in an upgrade window.

Wall Street points out that the demand for iPhones is exceeding supply by a huge margin on account of the upgrade cycle. Daniel Ives of Wedbush estimates that iPhone demand outstripped supply by 12 million units in the final quarter of 2021, setting the stage for robust demand in 2022 as well. Ives estimates that there are still 230 million people who are using iPhones that are three and a half years old.

With Apple's supply chain problems expected to ease in the first half of 2022, the smartphone giant should be able to sell its iPhones to more customers. Mizuho Securities analyst Yasuo Nakane, for instance, estimates Apple's iPhone builds in the first calendar quarter of 2022 will increase 20% year over year to 66 million units. The analyst expects full-year iPhone shipments to come in at 259 million units, which would be a 9% increase over last year.

However, Apple could end 2022 with stronger iPhone shipments as its entry-level iPhone SE 5G is expected to hit the market in March or April this year. A 5G-enabled iPhone SE is expected to unlock a massive sales opportunity for Apple by lowering the entry barrier for customers who are yet to purchase a 5G device. J.P. Morgan analysts estimate that this device could help Apple tap 1.4 billion Android smartphone users, while also encouraging users of 300 million legacy iPhones to upgrade.

In all, the iPhone looks set to clock another strong year, as Apple is reportedly going after a bigger share of the 5G smartphone opportunity. This bodes well for the stock as the iPhone produced 52.4% of Apple's revenue in fiscal 2021, and strong sales of this product in 2022 should ensure robust top- and bottom-line growth for the company.

The iPhone, however, is not the only reason why you should be betting on this Buffett stock in 2022.

More reasons why this tech giant seems headed higher

Apple's services business was one of its key growth drivers in fiscal 2021 after the iPhone. The segment's revenue increased 27% year over year to $68.2 billion during the year, accounting for nearly 19% of its total revenue. Venture capital firm Loup Funds was expecting Apple's services revenue to increase 15% in fiscal 2022, but the company easily exceeded that target.

Loup estimates 13% growth in the services business in fiscal 2023, but Apple could do better thanks to the expansion of its services business to more countries and the addition of new offerings. For instance, the company expanded the Apple One Premier subscription program to 17 new countries in November 2021.

Apple One Premier is the company's most expensive subscription service that costs $29.95 per month. For comparison, the individual and family plans are priced at $14.95 and $19.95 per month, respectively. The Apple One Premier program is now available in 21 countries after the latest expansion, which means that the company can now upsell its higher-priced offering to more customers across the globe and drive the growth of the services business.

It is also worth noting that Apple One's individual and family plans are available in over 100 countries globally, so there's a lot of room for growth for the Premier subscription tier. This should bode well for Apple's bottom-line growth, as the services business had a gross margin of 70.5% in the quarter that ended in September, which was significantly higher than the company's overall gross margin of 42.2%.

Additionally, Apple is reportedly looking to diversify its revenue stream in 2022 with a rumored AR/VR (augmented reality/virtual reality) headset that could help it tap into the metaverse opportunity. All of this makes Apple a top Warren Buffett stock to buy in 2022, as new product and services introductions could help it outperform expectations and maintain its growth-stock status.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns and recommends Apple and Berkshire Hathaway (B shares). The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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