Warren Buffett is known for holding onto stocks for the long term -- and even the idea of holding on forever isn't too much of an exaggeration. If Buffett believes in a business, he wants to stay involved in the story through each and every chapter.
All of this suggests Buffett's relationship with top technology and consumer goods giant Apple (AAPL +2.65%) could only continue to grow. The chairman of Berkshire Hathaway added Apple shares to the company's portfolio back in 2016, making them a rather new addition if we look at the picture through a long-term lens. And this isn't just a small holding. The trillion-dollar company actually makes up nearly half of Berkshire's portfolio in terms of value.
Following Buffett's lead often is a great idea, considering his investment successes over time. Does this mean you should go all in Apple stock? Let's find out.
Why Buffett likes Apple
It's easy to understand why Buffett likes Apple. The company has demonstrated strong earnings performance, has proven it has a solid moat, and Apple rewards investors through dividends and share buybacks.
We'll talk moat first, since Apple's successes truly start with this, its competitive advantage. The strength of Apple's brand means fans flock to buy the latest iPhone or Apple Watch -- without considering rival products. And Apple continues to create, with the latest development being the Apple Vision Pro spatial computing headset, ready for launch early next year. This sort of item probably won't fly off the shelves as easily as the latest iPhone, but it helps keep Apple at the head of the pack in terms of innovation.
Apple's brand strength also offers it pricing power, or the ability to lift prices without losing buyers.
Buffett loves a good moat because it signals a company has what it takes to continue generating earnings growth over time. And that brings me to the subject of earnings. Apple has delivered top performance over the years, with key financial metrics on the rise. They show Apple is growing profit -- and is benefiting from its investments.
AAPL Revenue (Annual) data by YCharts
Of course, in recent times, the difficult economic environment and foreign currency headwinds have weighed on earnings. First, it's important to keep in mind these are temporary problems, so they're unlikely to dim Apple's long-term prospects.
Apple services
Second, Apple's strength in services -- from digital content to iCloud data storage and financial products -- has helped compensate during the tough times. Even better, services could represent a whole new growth driver for the company, as users of Apple products pay for access to new features.
In the most recent quarter, Apple's services revenue reached a record thanks to more than one billion paid subscriptions. And here's some more good news: Services are higher margin for Apple than products. Services gross margin came in at more than 70% during the three-month period, while products margin was just over 35%.
This means Apple generates even more profit from services than from products -- so growth in services could be big for earnings down the road.
Finally, Buffett likes Apple for its commitment to rewarding shareholders. In the quarter, Apple paid out $3.8 billion in dividends and spent about $18 billion on share buybacks. Dividend payments allow investors to benefit from their holdings even if the market or the stock itself isn't performing well. So dividend paying stocks make great safety plays for any portfolio.
NASDAQ: AAPL
Key Data Points
Should you follow Warren Buffett?
Apple looks like a great investment, but getting back to our question, should you go all in on this stock? And here's where we might have to part ways a bit with Warren Buffett. Apple makes a great long-term buy today -- it's even trading at a bargain 26 times forward earnings estimates.
But I wouldn't recommend going all in on just one stock, with Apple or any other company making up half or more of your portfolio. To minimize your risk, it's best to invest across a variety of companies that you believe in and understand -- and Apple, with its fantastic combination of growth and safety, surely could be one of them.
