Macroeconomic pressures continue to dampen investor sentiment. And it’s clear to see the impact that it’s having on the UK’s biggest supermarket chain’s share price.

However, I’m contemplating whether this is a chance for me to grab some cheap shares. Let’s find out.

Steady demand

My main attraction to Tesco is the relatively safe nature it provides as a business. The company clearly isn’t immune to the damning effects inflation is having, as we’ve seen. However, regardless of economic conditions, there will always be — to some extent — demand for Tesco’s products. While we’ve seen retail sales tumble this year, food has seen little change.

In its latest results released in June, this is highlighted through the 1.5% growth in UK & ROI sales seen compared to the same period last year. And on a three-year like-for-like basis, sales have grown 9.7%.

What also draws me to Tesco is its geographical diversification. While rising inflation is a common theme across many countries worldwide, the extent of damage is variable. With 9% growth in its central Europe sales year over year, this shows the firm isn’t solely reliant on domestic sales.

What’s also another pull to the stock given the current economic environment is its enticing dividend yield. At the time of writing, this sits at 4.4%. While this is far from inflation-beating, it does offer a greater return than the FTSE 100 average. On top of this, Tesco has paid out to shareholders consistently for the past five years. As a potential investor, this is an encouraging sign.

Budget competition

The obvious threat to Tesco is competition. With the cost-of-living crisis, it’s understandable that consumers will likely turn to cheaper, more affordable stores.

In light of this, yesterday it was revealed that discounter Aldi had overtaken Morrisons to become the fourth-largest UK supermarket.

Research group Kantar said Aldi’s sales rose by nearly a fifth in the 12 weeks to 4 September, giving the German firm a near-10% market share. With the grocery market worth an estimated £131bn, both Aldi and Lidl have a combined 16% slice of it. With costs looking like they’re set to continue to rise, this could spell trouble for Tesco.

The firm has hit back at discounters with its Aldi Price Match and Low Everyday Prices products. For Q1, the overall distribution of these rose 19% year on year. However, with inflation ramping up in Q2, we will have to wait and see just to what extent these moves have deterred shoppers from switching.

Am I buying?

So, is now the time to buy?

Well, despite the hit it’s taken this year, I see Tesco as a solid investment. Despite consumers opting for cheaper alternatives, with its dominant position I think it’s hard to write off the superstore. Its dividend yield is also an added bonus. While its next set of results may provide a better picture of the impacts of inflation, I’d be willing to open a small position in Tesco today.

The post Is now the time to buy Tesco shares? appeared first on The Twelfth Magpie.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. 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.

Income stocks are a great way for me to put my money to work. Not only do they provide a passive-income stream, but they also require minimal effort.

With inflation sitting at the near-10% mark in the UK for August, this means my stagnant cash is losing value every day. And as such, I’m on the lookout for some cheap income stocks that can help me protect my money.

Here are two I’m strongly considering.

Rio Tinto

First on my list is Rio Tinto (LSE: RIO). The stock has fallen by over 5% across the last year, with it also down by just over 1% in 2022. However, in the last month the Rio Tinto share price has jumped 3%.  

At its current price, the stock offers an attractive dividend yield of 10.8%. While inflation is predicted to peak potentially above 20%, this yield is currently above the UK figure. This is a great way for me to mitigate the possibility of my cash eroding.

Despite cutting its interim dividend to $2.67 per share, the firm’s total payout for the first half still equated to its second highest ever!

On top of this, the stock looks cheap. It trades on a price-to-earnings ratio of 5.3, comfortably below the ‘value’ benchmark of 10. This is also below the average of its FTSE 100 peers.  

With a focus on iron ore, what could pose an issue for the business is the falling demand from China. The country accounts for half of the world’s steel output, so with ongoing Covid struggles alongside a weakening economy, this could spell trouble for Rio Tinto.

However, with a positive long-term outlook for commodities, I think Rio Tinto shares would be a solid buy for me today.

Taylor Wimpey

Another stock I have my eye on is homebuilder Taylor Wimpey (LSE: TW). Unlike Rio Tinto, it’s been a dire 12 months for the stock, as its share price has fallen around 36%. This year alone, it’s down nearly 40%.

With its demise, Taylor Wimpey’s shares offer a meaty 8.5% dividend yield. This isn’t above the UK inflation rate, of course. But the passive-income stream it will create will be valuable to my portfolio in the months ahead.

It’s been a turbulent few years for homebuilders. After making solid recoveries following the pandemic as the housing market boomed, 2022 has seen them suffer as a bleak economic outlook has seen market sentiment plummet.

Despite this, Taylor Wimpey’s half-year results were strong. The business managed to grow its operating profit on top of the impressive 2021 it had. It also saw its operating margin rise from 19.3% to 20.4%.

The biggest challenge the business is set to face in the months ahead is rising material costs as inflation continues to spike. Supply chain issues may also hinder its operations. However, with these as short-term concerns, I’d strongly consider buying Taylor Wimpey shares today.

The post 2 cheap income stocks to help fight back against inflation! appeared first on The Twelfth Magpie.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

It’s been a poor year for Scottish Mortgage (LSE: SMT) shares. The investment trust has been one of the top performers over the past decade, returning a whopping 450% to shareholders within this time. However, as inflationary concerns continue to bite, the stock has fallen nearly 45% across the last year.

So, is this fall a chance to buy Scottish Mortgage shares? I believe so. Here’s why.

Delving deeper

Let’s start by taking a closer look at why Scottish Mortgage has fallen in recent times.

The main driver behind this is inflation. Rising rates have seen global markets being pushed downwards in 2022. And with rates in countries such as the UK looking like they’re unlikely to slow down anytime soon, this has seen the Scottish Mortgage share price suffer.

During tough times the worst affected assets are growth stocks, which the trust focuses on holding. Due to their volatile nature, investors tend to turn their backs on such investments, instead opting for ‘safer’ alternatives.

Scottish Mortgage’s top holdings include the likes of Tesla and ASML, which have fallen 30% and 41% this year respectively. With this in mind, it’s clear to see why the stock has seen its price drop.

Is now the time to buy?

With that said, does it open the door for me to grab some cheap shares? After all, I think the trust has plenty of positives that make it a buy.

Firstly, Scottish Mortgage’s management investment style aligns with mine. And by this, I mean buying for the long term. The managers say performance is measured over a five-year+ timeframe. Therefore the volatility we’re currently experiencing could be seen as an opportunity rather than an issue.

While past performance is no indication of future returns, the last five years have seen Scottish Mortgage return 82% to its patient shareholders, highlighting the strength of long-term investing.

What I also find attractive is the diversity this single investment offers me. Buying Scottish Mortgage shares means I get exposure to over 100 companies, including over 50 unlisted businesses. And its cheap ongoing charges of 0.32% are an added benefit.

But there are a few factors that could drag its share price down in the months ahead.

To start, inflation looks like it’s set to continue to rise for the foreseeable future. This has been the main catalyst behind the trust’s downfall, so I wouldn’t write off the stock falling further should rates continue to spike.

Scottish Mortgage also has a large weighting to China. And with the country experiencing ongoing Covid struggles alongside a property crisis, it may be a while before we begin to see the extreme growth that we’ve seen in the Chinese economy in years gone by.

I’d still buy

Despite these issues, I’d still buy Scottish Mortgage shares today and hold for the long haul. The trust has proved it can return hefty profits to shareholders. And while in the short term China may experience further issues, I think that the stock’s weighting to the world’s second-largest economy could turn out to be a winner in the future.

The post Scottish Mortgage shares are down nearly 45%: is it time to buy? appeared first on The Twelfth Magpie.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended ASML Holding and Tesla. 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.

Surging inflation is continuing to cause global chaos. In the UK, official figures show that rates have now surpassed 10% and continue to spike to fresh highs. This means stagnant cash is losing value, so I’m searching for dividend stocks that can build a passive income stream to help me counter inflation.

Here are two I’m seriously considering purchasing this month.

Abrdn

The first stock I’m looking at is global investment firm Abrdn (LSE: ABDN). It’s seen over 40% wiped off its value so far this year. In the last 12 months, the Abrdn share price is down around 45%.

Despite this, I still think it could be a solid buy today.

Firstly, its main attraction is its monumental near-10% dividend yield. This isn’t inflation-beating. But it’s not far off. And therefore, this would offer me a good level of protection against rising rates.

Its latest update to shareholders wasn’t the most impressive. However, the moves the firm is making to return value to shareholders also look good to me.

There’s an initial £300m programme, including a £150m share buyback scheme.

The stock may struggle in the months ahead as investors are deterred from making investments. With the energy price cap also recently being raised, this will only magnify the issue.

However, as a source of passive income, I think Abrdn is a great buy. With a near-inflation dividend yield and the business placing an emphasis on improving this, I’d buy Abrdn shares today.

Legal & General

Another stock on my radar for this month is Legal & General (LSE: LGEN). The financial and insurance business is down around 8% over the past year. In 2022, it has plummeted by 18%.

Like Abrdn, the business has struggled as consumers have tightened their belts in the face of the rising cost of living.

However, with its fall comes a huge 9.5% dividend yield.

Legal & General is a well-known FTSE 100 business. By adding the stock to my portfolio, I’m getting a reputable brand for a beaten-down price.

It also recently posted a positive update for the first half of this year. Within the period, operating profit rose 8%, while earnings per share jumped by the same amount.

The business also had an interim dividend of 5.44p, up 5% from the year before. And to add to this, it highlighted its growing contribution toward its five-year ambitions programme. This includes a cumulative dividend ambition of potentially £5.9bn by 2024. And when searching for stocks that can create a stream of passive income for me, this is the sort of thing I want to see.

The business may face a rocky road ahead as some predict inflation could reach well over 15% come next year. And with spending already slowing, I expect to see this intensify as we head into 2023.

However, I’d still buy the stock today. As a strong brand with an impressive dividend plan, I think Legal & General would be a great addition to my portfolio in September.

The post 2 top dividend stocks to buy in September appeared first on The Twelfth Magpie.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

So, why is this? And is this a chance for me to buy some shares?

Why is BT down?

Why has the telecommunication giant suffered so much? Well, the obvious answer to this is inflation and investor nervousness about that. With rates surpassing 10% in the UK for July, this year has been incredibly volatile and we’ve seen untold amounts wiped off markets.

The stock has also suffered due to staff strikes. BT and the Communication Workers Union (CWU) had been locked in negotiations for weeks. And with BT’s previous offers failing to meet the wishes of the CWU, workers have been forming picket lines to show their discontent. With two further strikes set for next week, this could see BT suffer further.

Finally, the FTSE 100 firm also saw its share price fall following the release of its half-year results. While it contained positives, investors focused on the 10% drop in pre-tax profits to £482m.

An opportunity to buy?

Despite these issues, could now be a good time for me to open a position in BT?

Well, one tempting factor is its dividend yield. As its share price has fallen, its yield has been pushed up to around 5%, comfortably above the average of its FTSE 100 peers. While purchasing BT stock isn’t going to completely hedge me against inflation, this passive income stream certainly provides better value than keeping my cash in the bank.

There has also been plenty of speculation recently surrounding billionaire Patrick Drahi’s 18% stake in the firm. It was widely expected that measures would be put in place to block future purchases, or even rescind Drahi’s position. However, the UK government has given the Altice (Drahi’s business) stake in BT the all-clear.

This could theoretically open the door for a potential takeover, which would no doubt boost the BT share price.

But as the government also said that future acquisitions will be “subject to a separate assessment“, it seems Drahi may be restricted should he attempt a full takeover.

While BT reported a drop in pre-tax profits, I saw potential in the results it released. The business managed to grow its revenue for the first time since 2017, albeit by 1%. And with the continuous expansion of its already large infrastructure, such as its Openreach network, comes a degree of pricing power. After all, higher pricing in broadband and phone contracts contributed to its sales growth in the last quarter. In the volatile times we’re facing, for me this is key.

But a big concerning factor is its large pile of debt. This may hold the business back in its attempts to move forward.

However, I’d still be happy to open a small position in BT today. It does face headwinds. But with a fairly set of strong results, its stable nature, and its dividend yield, I think the stock could add something to my portfolio. The potential of a takeover is an added bonus, but I’d never buy just for that. I like to invest for the long term in businesses I believe in.

The post The BT share price continues to fall! Is this a chance to buy? appeared first on The Twelfth Magpie.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

It’s no secret that inflation has been wreaking havoc across markets this year. With stagnant cash depreciating, I’m on the lookout for top dividend stocks that can go some way towards hedging me against rising rates. Here are two I’m strongly considering today.

Red hot rates

Before we delve into my picks, let’s start by taking a closer look at what’s been going on so far in 2022.

In the UK, inflation continues to reach new highs and July saw it in double-digits at 10.1%. In its latest update, the Bank of England explained that rates could peak at 13% this year. And more recently, investment bank Citi made the bold prediction inflation could rise to as high as 18% next year. Or as it stated, “entering the stratosphere”.

Citi pinned its forecast largely to gas prices as it revealed the UK’s energy price cap could reach nearly £6,000 come April 2023.

Taylor Wimpey

With this, I’m looking to put my money to work. And my first pick would be homebuilder Taylor Wimpey (LSE: TW). Looking at its share price over the last 12 months isn’t a pretty read as the stock has seen 37% shaved off its price.

However, with this fall comes a meaty 8% dividend yield. This isn’t inflation-beating, but this passive income stream could certainly come in handy in the months ahead.

Despite tough economic conditions, the firm recently released a strong set of half-year results. On the back of a strong set of comparators, it managed to slightly grow its operating profit. And for its full-year outlook, it expects operating profits to be at the “top end of the current market consensus range”.

The biggest issues the company faces are rising material costs and potential supply chain issues. But with these only as short-term concerns, I’d consider buying the stock today.

Abrdn

My second pick would be global investment company Abrdn (LSE: ABDN). Like Taylor Wimpey, the stock’s price has suffered so far in 2022. Over the last year, the Abrdn share price has slid nearly 44%.

It currently offers a whopping 9.8% dividend yield, which is incredibly attractive. And on top of this, it also looks cheap with a price-to-earnings ratio of 5.4.

Despite some subpar figures being reported in its latest update, I still see plenty of positives with Abrdn.

Firstly, it recently completed the initial phase of a £300m shareholder return programme via a £150m share buyback scheme. Its interim dividend of 7.3p is also in line with its dividend policy.

The firm also finds itself in a “strong capital position”, with £600m in regulatory surplus.

Its biggest challenge will be cash-strapped consumers shying away from making investments as further economic troubles loom. And this was highlighted through the dip in fee-based revenue.

Yet despite this, I’d still buy today. Its monumental dividend yield is a major pull for me. And I see real long-term opportunity in a strong FTSE 100 brand that’s taken a beating in recent times.

The post 2 top dividend stocks to help fight double-digit inflation! appeared first on The Twelfth Magpie.

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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

This year has been bleak for the Royal Mail (LSE: RMG) share price. So far, the stock is down 50%. Over the last 12 months, shares in the FTSE 250 courier have plummeted 47%.

So, where will the Royal Mail share price go next? And with this fall, should I be rushing to snap up some cheap shares? Let’s take a look.

Workers walk out

Arguably the most pressing challenge Royal Mail faces in the near future is strike action. After a long set of negotiations, it was recently announced that the company’s workers, represented by the Communication Workers Union (CWU), would strike for four days in the coming weeks.

The action follows calls from staff for wage increases more closely aligned to inflation rates, which recently hit 10% in the UK. And with both parties failing to agree on terms they deem suitable, 115,000 workers will perform walkouts. The first of these will occur this coming Friday.

I see this situation going one of two ways – both of which cause problems for Royal Mail.

Firstly, in the short term, a strike of this magnitude will severely impact the efficiency of Royal Mail’s services, in turn, weighing down revenues. While the business has assured plans are in place to mitigate the staff reduction, I’d expect the strike to bear down heavily on the firm.

On the other hand, while unions are healthy and should be encouraged to create fair working conditions, should Royal Mail succumb to the CWU’s demands this will mean a major rise in labour costs for the firm. With the union’s demands totalling a potential £1bn, this could have a negative impact on Royal Mail in the long run.

Not all down and out

So, the ongoing dispute with workers could be a persistent issue for Royal Mail. Yet despite this, there are a few things that draw me to the stock.

One major pull is its meaty dividend yield. With inflation continuing its surge and rates predicted to peak at 13% this year, cash in the bank is losing more value every day. With a yield of 6.2%, this passive income stream would help me in part beat off inflationary issues.

On top of this, the stock also looks incredibly cheap with a price-to-earnings ratio of just 4.3.

However, a concern for me is its debt. As inflation spikes, interest rates will be hiked. And with its debt sitting at around £900m as of March, Royal Mail may struggle to eradicate this. Where Royal Mail has looked to modernise in recent times, such as through its new coded stamps, this debt may hold it back.

Where next?

So, where next? And should I be buying cheap shares?

Well, I won’t be buying today. The stock is attractive with its low valuation and high dividend, but with the challenges that it faces in the months ahead, I can see the stock sliding further this year. I’ll be avoiding Royal Mail for now.

The post The Royal Mail share price is down 50%. Where will it go next? appeared first on The Twelfth Magpie.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

In his many years of investing, Warren Buffett has amassed a net worth comfortably into the billions.

During his time as CEO of Berkshire Hathaway, the Oracle of Omaha has produced mouth-watering returns – double that of the S&P 500.

Along the way, Buffett has dropped nuggets of advice that I believe all investors should seriously consider when stock picking. Here are three pieces I’d use for my portfolio.

Buy the business

A lot of people judge their decisions based on the share price of a company. However, Buffett has stated in the past that it’s more important to focus on the strength of the business itself.

What this means is that he doesn’t necessarily buy stocks solely because they have a low valuation, for example. Instead, he looks more widely at whether he deems a stock attractive due to its core business features.

If this is the case, Buffett can then assess whether the share price offers value. This again doesn’t mean it’s just ‘cheap’ – but that he sees potential for growth.

Long-term outlook

As well as this, he also buys stocks for the long run. As he once said: “if you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes.”

Investments will undoubtedly go through volatile periods. But with a long-term perspective, these short-term headwinds are almost irrelevant.

Be greedy

Finally, Buffett has also talked of the ability to “be greedy when others are fearful” as a powerful tool to maximise returns.

The declines we’ve seen in global markets this year are obviously an issue. However, with Buffett’s advice, these declines also become an opportunity.

With many attractive businesses taking hits, now could be the perfect time for me to pile in.

These in action

With these in mind, it makes sense why Apple (NASDAQ: AAPL) is Berkshire’s top holding. The majority of people could tell you the value of Apple’s products and services, showing the strength of the business. And with the stock down 4% in 2022, this may be an opportunity to grab some shares.

On top of this, while past performance is no indication of future returns, the last five years have seen Apple stock rising 343%. For its long-term investors, these are some hefty returns.

Buffett deems Apple as one of his ‘four giants’. And in the second quarter, Berkshire topped up its holdings with an additional 4 billion shares.

The tech giant also posted some strong results in its latest update to shareholders, where net sales jumped 2% compared to H1 2021.

Within the results, CEO Tim Cook talked of Apple’s ability to “enrich the lives” of customers.

The business may see a slowdown in demand in the upcoming months as the cost of living continues to rise. Higher costs for materials and supply chain issues may also prove headwinds for the firm.

However, like Buffett, I deem Apple a strong addition to my portfolio. Its core business features are more than attractive. And if it carries on with its impressive growth, I think I could see some healthy long-term returns.

The post I’d follow this Warren Buffett advice when buying stocks appeared first on The Twelfth Magpie.

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Charlie Keough has no position in any of the shares mentioned. 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.

Since its IPO back in March 2021, the Deliveroo (LSE: ROO) share price has been on some journey. After initially tanking, the stock saw its price surge as pandemic restrictions saw locked-down consumers taking full advantage of its services. At times, Deliveroo stock has flirted with the 400p mark.

However, a Covid hangover has seen it once again suffer. In the last 12 months, Deliveroo has fallen a massive 75%. This year alone it’s down 53%.

So, could it possibly fall some more? Or would picking up Deliveroo shares now be a smart move?

Half-year updates

Late July saw the business update investors with its second-quarter trading performance. While the group saw a small growth in gross transaction value (GTV), headlines were stolen by the decision to downgrade its full-year GTV growth outlook from between 15% and 25%, to somewhere closer to the 4% to 12% range. With the firm pinning this to “a more cautious economic outlook,” given the way 2022 has played out, this isn’t a surprise.

More recently, Deliveroo provided shareholders with its performance for the first six months of the year, in which it warned of rising pressures from the higher cost of living. While revenues were up 12%, losses before tax grew to £147m, up from just £95m the year prior. Its adjusted EBITDA also sat at a loss of £68m, a large rise from the £26m seen in H1 2021. With that said, this figure had been trimmed compared to H2 2021.

Where next?

After this, what’s next for Deliveroo?

Its most pressing issue is inflation. While this has pushed up staff costs, the cost-of-living crisis has also seen consumers tighten their belts as they cut back on takeaways. With inflation expected to peak at 13% this year, the second half of 2022 could only see further cutbacks on the part of customers.

What also worries me about the business is its inability to turn a profit. Despite a booming 2021, it still posted losses of £300m. Although it’s confident in its EBITDA margin guidance, along with stating that its balance sheet “remains strong,” this is obviously a concern.

One area that provides me with hope is the partnerships that the firm managed to strike. This includes the likes of McDonald’s and WHSmith.

More recently, it also announced a new relationship with Asda for the rapid delivery of groceries. With the deal in place for 15 stores, there are plans to expand the partnership to 300 Asda stores by the end of the year. The hopeful rise in business from deals like these should help Deliveroo offset rising costs.

Would I buy?

So, has the Deliveroo share price bottomed? And should I buy?

The business has shown glimmers of its potential over the last few years. But I won’t be buying any shares today. I think Deliveroo will struggle further into the year as rising costs eat away at its bottom line. Its lack of profit is also of concern to me. Regardless of the drastic fall, I’ll be avoiding Deliveroo for now.

The post Down 75%, has the Deliveroo share price bottomed? appeared first on The Twelfth Magpie.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Deliveroo Holdings Plc. 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.

After he has amassed a net worth well into the billions, looking to top investor Warren Buffett for investment inspiration doesn’t seem like too bad an idea.

Since the Oracle of Omaha became the CEO of Berkshire Hathaway, he’s managed to generate average annual returns of 20% – twice that of the S&P 500. Pretty impressive.

Apple (NASDAQ: AAPL) makes up nearly half of Berkshire’s stock portfolio, showing Buffett is clearly bullish on the stock, as he deems it one of his ‘four giants’. Here’s why I agree.

Understandable investment

What I most like about Apple is that the value of the company is easy to grasp. As Buffett said, “the important thing is to know what you know and what you don’t know”. In essence, investments should be understandable. Billions of people use Apple products worldwide, so it’s clear to see the use that the company has.

This is shown through the firm’s better-than-expected latest results, where despite the cost-of-living crisis, net sales rose nearly 2% year over year. This included a 3% jump in iPhone sales, while Apple’s services division also saw a rise.

Speaking on its performance, CEO Tim Cook highlighted how it showed “Apple’s constant efforts to innovate, to advance new possibilities, and to enrich the lives of our customers”.

Despite this positive outlook, Cook did also mention the impact of inflation. And this could be a threat to the business in the near term. With it being felt through wages and component costs, this could drag the Apple share price down.

However, with iPhone 13 sales remaining strong despite the near release of a new model, I think this highlights the company’s resilience.

Buyback scheme

Apple has also been boosted in recent times by its share buyback scheme. The aim of this is to return value to shareholders.

Strategies like this have helped towards a meteoric 320% rise in its share price over the last five years, as last year alone the business spent $85bn on buying back shares.

This trend continued in its latest quarter as Apple returned over $28bn to shareholders.

Apple concerns

Despite this, I do have a few concerns surrounding Apple.

With a price-to-earnings ratio of 27, the stock doesn’t seem cheap. Granted, it’s been higher in the past. But with it significantly above the ‘value’ benchmark of 10, this is a worry.

With inflation also set to rise further, Apple’s resilience may break should we see consumers tighten their belts. It has plans to release the iPhone 14 later this year. But with the cost-of-living crisis looking like it’s set to worsen, the business may see a fall in demand for products.

However, there’s talk of Apple freezing the price of the iPhone 14, which goes against the usual trend of incremental price increases for new models. Given the times, this makes sense. And hopefully, this will help offset a slow in demand.

Why I’d buy

So, despite my concerns, I’d still buy Apple shares. Its results show that its capable of navigating tough periods. And with its buyback scheme, along with being an understandable investment, I think it’s a strong addition to my portfolio.

The post Warren Buffett loves this stock and so do I! appeared first on The Twelfth Magpie.

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Charlie Keough has no position in any of the shares mentioned. 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.