Investors can't seem to get enough of Warren Buffett and his investing strategy. After all, the Oracle of Omaha is one of the most affluent investors of all time, as evident by the success of his multinational holding company, Berkshire Hathaway (BRK.A -0.29%) (BRK.B -0.12%). If you take a look at Berkshire's investment portfolio, you'll notice that roughly 40% of its value is in just one stock, Apple (AAPL 0.46%). Berkshire's Apple stock is worth about $128 billion.
So, why does Buffett love Apple so much? Here are three reasons Apple is Berkshire's largest holding.
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1. Consistent and predictable financials
Apple has one of the most resilient businesses in the world and this is helping it shine today. While many big tech companies have posted weaker-than-expected quarterly reports recently -- owing to a range of macro and company-specific headwinds -- Apple was firing on all cylinders in its most recent quarter.
The company's $97.3 billion in total sales climbed 8.6% year over year and beat Wall Street estimates by 3.5%, and its $1.52 earnings per share finished ahead of consensus forecasts by 6.3%. While the 6.6% expansion in its core product business, i.e., iPhone, iPad, Mac, and wearables, Home, and accessories, was solid, it was the company's services segment that wore the crown for most-robust growth. The services category surged 17% to a record $19.8 billion, serving as the primary catalyst for growth with both big growth and big margins.
"These impressive results reflect the impact of our continued investment in improving and expanding our services portfolio and the positive momentum that we're seeing on many fronts," said CFO Luca Maestri during the quarterly call with analysts. The services segment includes the App Store, iTunes, Apple Pay, iCloud, and AppleCare.
For the full fiscal year 2022, analysts are modeling a top line of $394.2 billion and earnings of $6.15 a share, translating to 8% and 10% growth year over year, respectively. Apple's popular product business and growing services segment position the technology giant well.
2. The ability to generate cash
Buffett once said, "Cash is to a business as oxygen is to an individual." Apple certainly embodies that. The company has a cash position of $28.1 billion and is practically a money-printing machine. In the past 12 months, it generated $105.8 billion in free cash flow (FCF), and the three-year levered FCF compound annual growth rate is 13%.
Having a large cash position is beneficial for several reasons. First, it enables a company to meet all of its obligations and provides security in the case of unexpected economic events.
Equally important, it allows the company to reward shareholders via dividends and stock buybacks and allows reinvestment into the business. Recently, Apple's board of directors approved a 5% boost in its quarterly dividend, up to $0.23 a share -- the stock is yielding less than 1% at its current price -- and authorized an increase of $90 billion to the company's share repurchase plan. In short, a sizable cash position offers peak stability and financial flexibility, two key traits that Buffett looks for in a stock.
3. A wide economic moat and brand recognition
The power of the brand is often a key driver of a company's success. According to Forbes, Apple is the most valuable brand in the world. Apple's level of recognition helped it generate $386 billion in trailing-12-month revenue as of late March and capture just more than 50% of the smartphone market in the United States last year.
Today, the iPhone maker's $2.3 trillion market capitalization equates to 11% of the United States' 2020 GDP and is on par with that of the United Kingdom. Apple locks users into its ecosystem and has a strong economic moat. It's created a strong love for its products and routinely introduces new ones. This leads to more predictability for investors and a very durable business for Apple, regardless of the economic climate. For Buffett, an investor who seeks out companies with wide and long-lasting moats, Apple is the perfect stock to sit atop the Berkshire portfolio.
