Warren Buffett is known for picking the right stocks, and his choices have produced billions of dollars in returns and double-digit percentage gains over time. As chairman of Berkshire Hathaway, Buffett has delivered compound annual growth of more than 19% over 57 years. That's compared to 9.9% for the S&P 500. So, it's clear investors are right to pay close attention to the stocks he buys.
But Berkshire Hathaway actually doesn't own tons of stocks. There are only 45 names in the portfolio now -- and most of its value comes from just a few favorites. One of them is tech giant Apple (AAPL 1.68%), which accounts for almost half of the portfolio.
And right now, Buffett has reason to be happy about this investment since Apple has climbed by almost 50% this year. But for investors who haven't yet bought Apple and would like to follow in Buffett's footsteps, is it too late? After such a gain, should you still buy this top stock?
Apple as a long-term investment
A look into the past shows us that Apple has proven its ability to be a great long-term investment. The company has increased earnings over time and has grown key financial metrics. High levels of free cash flow show us the company can afford to keep paying its dividends -- making Apple a player you can count on for passive income as well as share price growth.
AAPL Return on Invested Capital data by YCharts.
And its gains in return on invested capital show the company has been benefiting from its investments, indicating that Apple has deployed its cash wisely.
All of this is thanks to a stellar collection of products -- from the iPhone to the Apple Watch -- that have helped the company build a rock-solid brand -- one that consumers prefer and won't abandon for a rival. This brand strength is Apple's moat, and it's the reason it has been able to grow product revenue over the years and why growth is continuing today.
In its fiscal Q4 2023 (which ended Sept. 30), Apple's total installed base of devices reached an all-time high across products and geographic areas. And iPhone sales set a fiscal Q4 record. The company also set fiscal Q4 records in several countries across the globe.
Apple demonstrated in the quarter that its gains in revenue aren't just due to its established customers, but also to growth in new customers. About half of Mac and iPad buyers in the quarter were new to those products.
NASDAQ: AAPL
Key Data Points
Apple's services business
So, the mix of brand strength, returning customers, and new customers should keep Apple's earnings climbing -- but something else may actually be its biggest growth driver. I'm talking about Apple's services business, which depends on those who use Apple devices and subscribe for access to digital content, cloud storage, and more.
Apple this year reached a level of more than 1 billion paid subscriptions. And this could be the element that will kick off a whole new era of growth at Apple, an era you probably won't want to miss. Services revenue reached a record high in the most recent quarter, and gains aren't likely to stop there. Apple has a huge subscriber base right now, and as it launches new services or boosts old ones, it can grow its revenue just with today's subscriber base -- but it's likely its subscriber base will expand too.
Finally, what's great about subscription revenue is it's recurrent. You may not buy a new iPhone often, but once you own one, you'll likely sign up for services that ensure Apple a regular stream of revenue.
Is Apple cheap?
All of this sounds great, but is Apple, after this year's gain, still worth the investment? Here, it's time to look at valuation. Apple trades for about 29 times forward earnings estimates, a lower ratio than many other growth stocks, and the shares look reasonable considering the company's track record and prospects.
AAPL PE Ratio (Forward) data by YCharts.
Yes, Apple shares have advanced quite a bit this year, and they probably won't continue upward at this pace without interruption. But they have what it takes to climb higher over time as consumers flock to Apple products, and their subscriptions progressively drive even more growth for the company year after year.
So, it isn't too late for you to follow billionaire investor Warren Buffett and pick up shares of this top-performing stock. Apple shares have plenty of room to run, and like Buffett, if you buy it and hold on, you may reap the rewards.
