A Warren Buffett stock I’d buy and one I’d avoid

Stuart Blair — Sun, 10 Jul 2022 10:31:18 +0000

Warren Buffett is known as one of the greatest investors of all time. Indeed, since becoming CEO of Berkshire Hathaway in 1965, he has managed to deliver a return of 3,600,000% for the company’s shareholders. This has far outperformed the S&P 500.

That is not to say that all of Buffett’s investments have been great. For example, a few years before the pandemic, he made investments into all four major US airlines, before selling them at the lows of the pandemic. Since this moment, the airlines have recovered well. He also admitted that he paid far too much for Kraft Heinz, which was one of his largest purchases. Therefore, I do not blindly follow Buffett’s investments. Instead, I opt to do my own thorough research. Here’s one of his investments I would buy and one I am staying clear of.

One of Warren Buffett’s most successful investments

Warren Buffett first started building a stake in Apple (NASDAQ: AAPL) in 2016 and has made around a 400% return since then. Recently, he has been adding to his position, buying around another $600m worth of Apple stock in Q1. I believe that now is a good time to add to my own position.

The group is performing excellently right now. In the recent second quarter, it posted record revenues of $97.3bn, up 9% year on year. At the same time, net income reached over $25bn, up from $23.6bn the year before. This demonstrates that Apple has dealt well with inflationary pressures and continued reporting strong growth.

However, the company is not immune to macroeconomic worries. For instance, it has warned that due to strict Covid-19 lockdowns in China and supply constraints, revenue is likely to be hit by around $4bn to $8bn in the third quarter.

Even so, I am happy to buy more Apple stock in the next few months. The company is in excellent financial shape, as shown by a recent $90bn increase to the share repurchase programme. I am also encouraged by its further move into finance, through its new buy now, pay later service. This could offer a further form of growth.

An investment I would avoid

Buffett has continued to buy Occidental Petroleum (NYSE: OXY) over the past few months. As the price of oil has surged, the oil giant has been able to post extremely large profits. For instance, in Q1, the company reported net income of $4.7bn, which was a record for the company. Without the inclusion of a $2.6bn non-cash tax benefit, adjusted income reached $2.1bn, far higher than the $346m loss reported in the same period last year.

These excellent results allowed the company to repay $3.3bn of debt. Once it manages to pay an additional $1.7bn of debt, the company’s focus will be to expand the $3bn share repurchase programme. This may help boost the Occidental share price further.

However, despite these excellent results, I am staying away from oil stocks right now. In fact, as recognised by Occidental themselves, it sees “the potential for market conditions to dampen slightly in the second half of the year”. Further, with climate change one of the most pressing issues in society, I believe that the long-term future of oil stocks is unstable. As I invest for the long term, I will, therefore, not be adding Occidental shares to my portfolio.

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Stuart Blair owns shares in Apple. The Motley Fool UK has recommended Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I’m following Warren Buffett and buying this mega-cap stock

Stuart Blair — Tue, 31 May 2022 06:41:00 +0000

Warren Buffett currently has a net worth of over $100bn, making him the sixth wealthiest person in the world. But this has not happened by luck. Instead, Buffett is renowned for picking out value stocks with tons of potential. Famous examples include his investments in United Parcel Service in 2006 and Coca-Cola in 1987. But one of his most successful investments is Apple (NASDAQ: AAPL), which has soared around 400% since he started investing. Recently, it was disclosed that he bought another $600m worth of Apple shares as the stock dipped in the first quarter of 2022. After its recent dip, I’d do the same.

Trading results

Every year, Apple has continued to impress, which has cemented its mega-cap status (a valuation of over $200bn). For example, in FY21, Apple recorded net sales of $365bn, a 33% increase year-on-year. Operating income also soared, reaching a record $109bn, a 64% increase. Such results meant Apple was able to reach the $3trn valuation mark, making it the most valuable company in the world at the time. It has since dropped back to a valuation of ‘only’ around $2.5trn however, being eclipsed by Saudi Aramco as the most valuable business globally.

This drop has partly been due to mildly disappointing forward guidance for the third quarter as the tech giant expects a revenue hit of around $8bn resulting from component shortages and Covid-related plant closures in Asia.

Macroeconomic uncertainties are also burdening the business. For example, higher interest rates are likely to make it more expensive for it to borrow, a factor that could depress growth. Soaring inflation is also causing problems, as Apple is having to raise wages for its workers. This may strain profit margins, a factor that could hurt Apple’s stock price.

Why would Warren Buffett still buy?

These are clearly major problems, so it may be surprising to see Warren Buffett buying more. However, I can think of many reasons why he’d do that.

First, Apple is still in a dominant position and in the Q2 results, it reported a 9% surge in revenues to $97.3bn. This was also accompanied by a very healthy profit of $25bn. Both these figures were higher than expected, demonstrating that growth rates remain strong.

In addition, Apple is continuing with its major share buyback programme and has authorised an additional $90bn. This is well covered by operating cash flow, and as it reduces the amount of outstanding shares, it increases individual ownership. This is a big reason for the continued general strength of the Apple share price. It’s also a primary reason, I feel, for Warren Buffett continuing to invest in the company.

What am I doing?

I already own a small stake in Apple, and after dipping nearly 20% since its highs in March 2022, I’m tempted to build on this stake. After all, it’s up over 20% in 12 months and the company’s dominance is too tempting. The issues facing the firm right now seem short term to me. I believe that Apple stock can continue its long-term outperformance.

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