Buying the same stocks as famed investor Warren Buffett won't turn you into a billionaire, but it can steer your portfolio in the right direction. A $1,000 investment in Berkshire Hathaway (BRK.A 1.18%) (BRK.B 1.30%) in 1965, when Buffett took over, would be worth about $28 million today. That is the outcome of buying great businesses when they are selling below their intrinsic value.
Let's review the investment cases for Verizon Communications (VZ 0.90%) and Apple (AAPL -1.22%). These are two of Berkshire's largest holdings and could be great stocks to invest in for the long term.
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1. Verizon
Verizon fits the mold of the typical stock Buffett looks for: an industry-leader that generates consistent revenue and profits. The wireless service provider was one of Berkshire Hathaway's largest holdings at the end of 2021. Berkshire's latest annual report shows it owned 3.8% of the total shares outstanding, with a cost basis of $9.4 billion.
Verizon operates a wireless network that consistently draws high praise from customers, which has led to the lowest churn rate in the industry. It reaches 30 million households with fixed wireless services, and has led the rollout of 5G wireless technology. Management recently set a goal of achieving incremental growth of $14 billion in service and other revenue by 2025. Over 75% of its growth is expected to come from 5G mobility and nationwide broadband.
A large base of satisfied customers translates into recurring revenue each year, and dividends for shareholders. Over the last four quarters, Verizon generated $21 billion in profit on $134 billion in revenue. It paid out half of its profits to shareholders, bringing the dividend yield to an attractive 5.3%.
Verizon has raised its dividend for 15 consecutive years, reinforcing the strength of its business and confidence in the future. It's certainly a tempting buy right now, trading at nine times trailing earnings on top of that tantalizing dividend yield.
2. Apple
Apple is Berkshire's largest holding. At the end of 2021, Berkshire Hathaway owned 5.6% of the iPhone maker. Apple is one of the largest investments Buffett has ever made. At the end of 2021, Berkshire's reported cost basis on its Apple investment was $31 billion, with a market value of $161 billion. It's already proving to be one of the greatest investments of Buffett's career.
Again, Apple appears to be a classic Buffett investment. Apple has achieved unmatched customer satisfaction and loyalty. It's a powerful advantage with a growing base of 1.8 billion active devices at the beginning of the year. With millions of customers with stored credit cards on file with their Apple account, that large installed base is translating to growing demand for higher-margin sales of apps and subscriptions.
Between fiscal 2019 and fiscal 2021 (which ended in September), Apple's services revenue grew at a compound annual rate of 27% per year. Apple reported 17% growth in services revenue in the March quarter, bringing this lucrative stream of revenue to 20% of Apple's business.
Growth in services is making a very profitable company even more profitable. Over the last four quarters, it generated $105 billion in free cash flow on top of $386 billion of revenue. It paid out 14% of its profits in dividends, bringing the dividend yield to 0.58%.
The stock is not as cheap as Verizon, but at a price-to-earnings ratio of 25.6, it's difficult to call Apple stock expensive. It seems priced about right, given Apple's growth prospects and brand power.
