How Apple stock became one of Warren Buffett’s four ‘jewels’

Warren Buffett’s investment in Apple (AAPL) stock has quickly become the most prominent holding in Berkshire Hathaway’s (BRK-A, BRK-B) $360 billion equity portfolio.

Berkshire first bought the stock in 2016, and since then Apple has grown to a $110 billion position comprising roughly 40% of Berkshire’s stock holdings. Berkshire owns just under 6% of Apple.

The rapid growth has positioned the largest US public company as a fixture in Berkshire Hathaway’s annual shareholder letters and Buffett’s comments during annual meetings.

At Berkshire’s annual shareholders meeting on Saturday, investors will eagerly await what Buffett might say about his largest holding and its new forays into augmented reality headsets, in-house computer chip creation, and expansion in India.

The meeting also comes less than 48 hours after Apple’s earnings report published late Thursday, which showed better than expected iPhone sales despite a 3% revenue decline year-over-year.

Year-to-date, shares of the iPhone maker are up nearly 30%.

The four ‘jewels’

In 2020, Buffett highlighted the Apple investment as one of the company’s four “jewels,” along with Berkshire’s insurance operations led by Ajit Jain, Berkshire’s ownership of railroad BNSF, and its Berkshire Hathaway Energy subsidiary.

From shareholder returns to its brand recognition to its management team, Apple fits the bill for a Buffett bet.

Buffett has long been a believer in the benefits of share buybacks and highlighted outsized dividend payments Berkshire receives from some long-time holdings like Coca-Cola (KO) and American Express (AXP) in this year’s letter to shareholders.

“Our cost for that stake was $36 billion,” Buffett wrote in his 2020 annual shareholder letter about the company’s investment in Apple. “Since then, we have both enjoyed regular dividends, averaging about $775 million annually, and have also — in 2020 — pocketed an additional $11 billion by selling a small portion of our position.

“Despite that sale — voila! — Berkshire now owns 5.4% of Apple. That increase was costless to us, coming about because Apple has continuously repurchased its shares, thereby substantially shrinking the number it now has outstanding.” Today, Berkshire owns about 5.8% of the company.

The Oracle of Omaha, however, was patient in entering the fray on his Apple position.

Berkshire didn’t place its bets on the company after the success of Apple’s iPod launch in 2001 or its iPhone launch six years later. Instead, Buffett’s ride with Apple has been fueled largely by growth in the company’s services business.

In 2015, Apple reported annual services revenue of $19.9 billion and wearable revenue of $10.1 billion.

In 2022, those categories produced $78.1 billion and $41.2 billion, respectively.

“I just think of basically the utility of those products to a ecosystem that is demographically terrific and finds that instrument useful dozens and dozens of times a day,” Buffett told Yahoo Finance in 2020. “It’s almost indispensable, not only to individuals, business, I mean, everything.”

More recently, Apple launched its high-yield savings account with Goldman Sachs, and at an event in September 2022 the company stressed its ambitions to integrate more deeply with healthcare tools.

And when it comes to management, Buffett has rarely been lacking for praise of Apple CEO Tim Cook.

“Tim Cook, Apple’s brilliant CEO, quite properly regards users of Apple products as his first love, but all of his other constituencies benefit from Tim’s managerial touch as well,” Buffett wrote in Berkshire’s 2021 letter to shareholders.

Adding at the 2021 annual shareholders meeting: “Tim Cook was underappreciated for a while. He’s one of the best managers in the world. And I’ve seen a lot of managers. And he’s got a product that people absolutely love. And there’s an installed base of people, and they get satisfaction rates of 99%.”

Apple CEO Tim Cook arrives for the first in-person annual meeting since 2019 of Berkshire Hathaway Inc in Omaha, Nebraska, U.S. April 30, 2022. REUTERS/Scott Morgan

Apple CEO Tim Cook arrives for the first in-person annual meeting since 2019 of Berkshire Hathaway Inc in Omaha, Nebraska, U.S. April 30, 2022. REUTERS/Scott Morgan

Josh is a reporter for Yahoo Finance.

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