Those wanting to forge a path as successful investors could do worse than mirroring the philosophy of legendary Berkshire Hathaway CEO Warren Buffett, who is arguably one of the most successful investors of all time. Since taking the helm in 1965, his picks have yielded compounded annual gains of more than 20% and have collectively soared a massive 3,641,613%.
As we close out the train wreck that was 2022, investors are beginning to look to the future. Buffett’s intriguing array of stock picks offer something for every investing style, including income generation, growth potential, preservation of capital, and everything in between.
If I could only buy one Buffett stock before 2023, my pick would be a company with a strong track record of growth, the resources to ride out an economic storm, and a history of returning capital to shareholders. Read on to find out why Apple (AAPL -0.34%) is my top pick.
Image source: Apple.
Growth is second nature
Apple was long known for its Mac computers but it wasn’t until the release of its iconic iPod 21 years ago that the company became a household name. Since then, the tech giant has consistently found ways to stay on a trajectory of growth.
The company has employed a strategy of new products, upgrades to existing devices, and a growing roster of services to fuel its growth. For fiscal 2022 (ended Sept. 24) Apple’s sales grew 8% year over year, while its diluted earnings per share climbed 9%. Even as device sales slowed, services picked up the slack, growing 14%. What makes this all the more impressive is that it came in the face of the worst macroeconomic headwinds in more than a decade. The reason? Apple’s sticky ecosystem combined with its extremely loyal customer base.
This is just one of the reasons Apple is far and away Buffett’s top stock, making up roughly 39% of Berkshire Hathaway’s entire portfolio.
A port in an economic storm
Apple’s consistently strong results are certainly an attraction, but for some investors, there’s nothing more compelling than the safety and security of a fortress-like balance sheet — which provides them a port to ride out an economic storm. The iPhone maker certainly qualifies in that regard.
In the event the economy continues to worsen, Apple is prepared. The company has roughly $49 billion in net cash on its balance sheet, which provides it with plenty of financial resources to ride out any economic headwinds and an increasingly rocky economy.
With each passing quarter, Apple continues to store up for a rainy day.
A record of shareholder-friendly policies
Apple has a long history of rewarding shareholders — and not just with impressive stock price gains.
Apple resumed paying a dividend in 2012 and its track record over the past 10 years has been striking. On a split-adjusted basis, Apple’s payout began at roughly $0.095, but has soared an impressive 143% since its inception. Furthermore, Apple uses just 15% of its profits to fund the payout, so the company continues to grow its dividend for the foreseeable future.
While its yield might seem meager at 0.64%, that’s the result of Apple’s impressive stock gains. Over the past decade alone, shares are up roughly 650% — even after their recent decline. The stock price has been fueled by robust business performance that has consistently defied expectations.
There’s also Apple’s lavish share repurchase plan. The company has been buying stock left and right, retiring more than 39% of its outstanding shares over the past decade. This gives shareholders an increasing ownership of Apple.
Buffett commented on Apple’s stock buyback plan, saying he’s “wildly in favor of it.” He also said he likes that the repurchase plan increases Berkshire’s ownership of every dollar of Apple’s earnings, without having to lift a finger to get it.
Every rose has its thorns
To be clear, Apple stock isn’t going to appeal to every investor and — as with every stock — there are risks. In the event the economy slips into a recession and demand for the iPhone dries up, Apple will no doubt take a hit. The iconic device accounted for 52% of the company’s revenue last year. Given the relatively high price point of the iPhone, consumers might opt to wait out a downturn before upgrading to the latest model. On the other hand, the resulting pent-up demand would catapult the results forward when the economy found better footing.
Furthermore, Apple stock isn’t particularly cheap, selling for 23 times earnings, just slightly below the price-to-earnings ratio of 25 for the Nasdaq Composite.
That said, given the company’s long history of growth, its ability to withstand a downturn, and its shining record of shareholder returns, I’d buy Apple before 2023 without any hesitation.
Danny Vena has positions in Apple. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway, long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway, short January 2023 $265 calls on Berkshire Hathaway, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
