Berkshire Hathaway Is Bullish On AAPL Stock, Should Investors Follow Suit?
Over the weekend, Warren Buffet’s Berkshire Hathaway (NYSE: BRK.B) published its highly anticipated annual letter. For many investors, it’s an event that they will watch closely as many investors would typically try to replicate Buffett’s investment strategies. That doesn’t mean you should automatically add in any new positions after reading the annual letter.
For those who are an avid fan of Buffett, you would know that he isn’t generally a fan of tech stocks. But he doesn’t shy away from Apple (NASDAQ: AAPL). In fact, it is his company’s largest holding as you can see in the annual letter. Also, with help from investing deputies including Todd Combs and Ted Weschler in Berkshire, the investment firm has also added shares in Amazon.com (NASDAQ: AMZN) and Snowflake Inc. (NYSE: SNOW). More recently, Berkshire accumulated an $8.6 billion holding in Verizon Communications Inc. (NYSE: VZ).
Buffett also went on to comment on how share repurchases are good for AAPL stock investors. For those unfamiliar, the Oracle of Omaha is well known for writing letters to shareholders annually, outlining his investments over the previous year. From the annual letter released on Saturday, the investment firm wrote a fair bit about its stake in AAPL stock. If you are considering investing in AAPL stock, read on.
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The tech titan is the pride of Buffett’s portfolio as it “vividly illustrates the power of repurchases.” Berkshire’s investment in the company cost $36 billion. Since then, Berkshire has received $775 million annually as dividends.
Berkshire ramped up its Apple purchases through 2018 and has since been trimming that stake. That allowed the company to pocket $11 billion on sales in 2020. However, as Apple keeps buying its shares back, Berkshire’s stake in the iPhone maker grew. Berkshire still owns 5.4% of Apple as of today.
Apple’s 5G iPhone
The real question for 2021 is whether the first 5G iPhone upgrade supercycle will continue to materialize. Many analysts are anticipating that the 5G upgrade would lead to a surge in iPhone sales. Should it materialize, it will be a rewarding time for AAPL stock investors. That’s considering that the iPhone still accounts for a big portion of Apple’s revenue. From its Q4, iPhone sales represented 41% of Apple’s total sales.
As usual, many Apple fans may have already started to anticipate another iPhone launch which is expected to happen this fall. The iPhone 13 may or may not surprise consumers with its offerings. But it will certainly serve its purpose for investors to speculate for the time being.
Recall that at the end of November, Wedbush analyst Daniel Ives rated Apple stock at Outperform. He set a 12-month price target of $150, noting: “With our estimation that 350 million of 950 million iPhones worldwide are currently in the window of an upgrade opportunity, we believe this will translate into an unprecedented upgrade cycle for Apple with a major holiday season on the horizon.“
Wearables & Services Continue To Bring Big Gains
One of the true surprises is the company’s AirPods. They have become the top seller in the wireless headphone market. In fact, AirPods have turned into a big business. In 2019, Apple sold nearly 60 million pairs. Wedbush predicted Apple sold 90 million in 2020 and believes it will sell 115 million in 2021.
Services have been a big part of Apple’s strategy for replacing slower iPhone revenue. For the uninitiated, Apple Services revenue came in at $15.8 billion in its most recent quarter. That’s up 24% year-over-year and makes it Apple’s second-largest division in terms of revenue. With Apple Fitness+ and Apple One subscription bundle slated to release this year, investors are expecting the company to bring in more revenue from the new service offerings.
When it comes to design, there are probably no two brands as beloved in the U.S. as Apple and Target (NYSE: TGT). And now, the two companies are teaming up for a new initiative: Tiny Apple stores inside Targets. From the partnership, the retailer is also unveiling a new shopping experience for both store locations and its e-commerce site. According to a press release issued by Target on Thursday, the two companies are rolling out an “enhanced Apple shopping experience” for the big retailer’s customers.
Incidentally, both companies are under the influence of the same retail veteran, Ron Johnson. He was the head of merchandising at Target before involving himself in the launch of Apple’s retail stores.
Most importantly, the new Target/Apple partnership may actually not be physical but digital. That’s because not only is Apple getting its own installation in Target’s physical stores; it’s getting a special Apple section on Target’s website and app too. Following this, Apple’s products have a new channel to sell its products in one of the top retailers in the U.S.
News Of Apple Car Keeps Coming
The Apple Car is probably the most speculative news when it comes to rumors and leaks this year. This gives me a flashback of the first iPhone more than a decade ago. It started late last year when a Reuters story said that Apple aims to launch its first driverless electric vehicle in 2024. While recent reports seem to point to the direction of Hyundai as the likely partner for the project, Apple did not confirm the deal.
Although there are speculations that Apple will partner with another automotive maker such as BMW, it is still speculation at best. In a note to investors seen by AppleInsider, lead analyst Harsh Kumar laid out Piper Sandler’s framework for a potential “Apple Car” release.
“Overall, we think Apple entering the automotive market makes perfect sense. Similar to its other hardware offerings, the company can enter the market at a time of peak technology disruption while avoiding the risk of forming the market.”
Of course, the fact that Buffett invested in AAPL stock by no means suggests that you should too. You have to consider an investment in the context of your own portfolio. However, the legendary investor can still offer us a lesson or two. If Apple can keep growing its sales of wearables and services, this will no doubt produce real upside for AAPL stock in 2021. And not to forget the possibility of an Apple Car. These are some of the few areas investors might want to pay attention to. That’s to see if AAPL stock can reach the $3 trillion mark in the near to medium term. With all these in mind, is it any surprise to say that Apple is still one of the best tech stocks to buy?