In times of uncertainty, investors will often look toward the relative safety of companies known to have earned a spot in Warren Buffett's portfolio. Often considered to be one of the greatest capital allocators ever, Buffett has used his investing prowess to parlay a struggling textile manufacturer into one of the largest and strongest cash-generating companies around. With that reputation and history, it's no wonder people are willing to follow Buffett into the stocks he owns and even into being part-owners of his holding company, Berkshire Hathaway (BRK.A -0.10%) (BRK.B -0.09%).
Although following the crowd is rarely a path to market-trouncing returns, if there's any investor that might be worth following even when others are doing the same, it'd be Buffett. Three Motley Fool contributors got together to look through Buffett's list of holdings to see if any are worth considering buying today. They chose Apple (AAPL -0.82%), Taiwan Semiconductor (TSM -0.23%), and Berkshire Hathaway itself. Read on to find out why and decide for yourself whether any of them are worth a slot in your portfolio.
Take a monster bite of this one
Eric Volkman (Apple): Remember the great tech stock slump of 2022? Well, that's now quite some time in the past, with many companies in the sector beating the market lately. One that has done so, and that looks set to continue that performance, is habitual outpacer Apple.
Buffett and Berkshire are huge believers in Apple's potential. At the end of 2022, the stock constituted 44% of Berkshire's equity portfolio. By contrast, the next-largest holding in terms of percentage -- Bank of America -- came in at less than 9%.
This faith is entirely justified. Apple has been successful in every major endeavor it's undertaken recently. Its products are mainstays with consumers around the globe, which is particularly impressive given that they've been on the market for over a decade and a half now. The typical shelf life for a hot electronic gadget line tends to be a few years, at best.
Apple has managed to build an ecosystem around the devices that continuously and strongly rakes in money; sooner or later, iPhone users are going to be tempted to buy an app or make an in-app purchase. No prizes for guessing which party typically gets a 30% cut of every single one of those sales. (It's Apple.)
Meanwhile, the company is as restless as it was in those long-ago days when founders Steve Jobs and Steve Wozniak were tinkering around in a California garage. With the introduction in late 2020 of its proprietary and very powerful M1 chip, Apple has dramatically upped the performance of its Mac computers and its MacBook laptops, keeping those products top-of-class and on many a shopping list.
Even with its recent price appreciation, the company's stock still looks cheap on its key valuations. Forward P/E -- using earnings estimates -- is just under 28, which is attractive given the many double-digit leaps in both profitability and revenue Apple has effortlessly managed in the past, plus the great potential it holds as a top tech innovator and a maker of irresistibly cool gadgets.
Buffett may have sold, but I'm looking to buy more
Jason Hall (Taiwan Semiconductor): Suggesting this stock may seem counter to following Buffett's thinking, considering that Berkshire actually sold almost 90% of its stake in Taiwan Semiconductor, better known as TSMC, less than a year after making a multibillion-dollar investment in the company. So why am I taking the contrarian position on TSMC? In short, because the reasons Buffett stated for selling, including concerns about geopolitical risk, are things I am willing to risk. I'm also not investing $4 billion of capital that belongs to other shareholders.
TSMC is one of the most important companies on earth, with a massive economic moat as the contract manufacturer of the most advanced semiconductors, and a massive share of all the prior generations that are still viable. Its scale and the trust it's earned result in massive network effect strengths, and that results in both pricing power and major cost advantages. It can make chips cheaper -- and more profitably -- than anyone else.
But concerns about potential conflict between China and Taiwan and the ongoing lull in semiconductor demand have weighed on the stock price, and I think that makes it too attractive to ignore. At recent prices, it trades for 13 times trailing earnings and 8.3 times operating cash flow. Its earnings and cash flow may suffer in 2023, but the next decade is primed to be very good for semiconductor stocks and that's going to be good news for TSMC.
The granddaddy of all Buffett stocks
Chuck Saletta (Berkshire Hathaway): There is one Buffett stock that represents a business that Buffett himself built. The company behind that stock is so strong that the biggest criticism many people can levy against it is that it has and generates too much cash. Of course, all that cash came in handy during the global financial crisis, when Buffett was able to invest it to bail out some troubled financial titans.
The stock, of course, is Berkshire Hathaway. What makes it so powerful isn't just the fact that Buffett himself sits at the helm of the business, but that it managed to generate nearly $35 billion in operating cash flow over the past year. That's $35 billion new dollars that can be reinvested to shore up what is already a diversified conglomerate.
When its subsidiaries are included, Berkshire Hathaway covers industries from insurance to power generation, and from furniture to food. It even owns a railroad to help move materials across large swaths of the country. All that adds up to a business that will have consumer demand pretty much no matter what the overall economy is doing.
That broad demand, strong cash stockpile, and incredible ability to keep generating new cash makes Berkshire Hathaway a great company to consider owning in uncertain times. When you add the fact that the company is available for around 1.5 times its book value, Berkshire Hathaway starts to look like an incredibly strong business available at a surprisingly reasonable price. That combination is what makes it a Buffett stock worth considering as an investment today.
Follow the best
In over a half century at the helm of Berkshire Hathaway, Buffett has navigated his way through all sorts of economic conditions. If you're not sure what to invest in today, given all the uncertainty, you could do far worse than to be inspired by the stocks he owns. Whether Apple, Taiwan Semiconductor, or Berkshire Hathaway itself makes the cut for you, or whether you find more to like in a different Buffett stock, you're on the right path.
By making today the day you start digging into what to buy, you'll get yourself that much closer to finding what could turn out to be your next great investment.
