If there's one thing Berkshire Hathaway (BRK.A -1.93%) (BRK.B -2.10%) CEO Warren Buffett does better than just about any other professional money manager, it's make money. Since taking the reins in 1965, the "Oracle of Omaha" (as he's been dubbed by Wall Street) has overseen a greater than 4,500,000% return for his company's Class A shares (BRK.A), as of Sept. 14, 2023.
Generating close to a 20% annualized return over the span of nearly six decades is going to get you noticed. Professional money managers and everyday investors alike eagerly await Berkshire Hathaway's quarterly 13F filing to get a glimpse at what one of the brightest minds on Wall Street has been buying and selling.
Based on Berkshire's 13Fs, as well as the Oracle of Omaha's commentary during his company's latest annual shareholder meeting, it would appear that no stock is loved more than tech giant Apple (AAPL 0.45%). But dig a bit deeper and you'll find one, and only one, stock that's even more near and dear to the Oracle of Omaha's investor-driven heart.
Apple checks all the right boxes for Warren Buffett
In mid-August, when Berkshire Hathaway filed its 13F, which provided a snapshot of the company's holdings as of June 30, 2023, Apple stood out as the clear top investment. As of the closing bell on Sept. 14, Apple accounted for 45.4% of Berkshire Hathaway's $354 billion investment portfolio. For context, Bank of America?is the second-largest holding by market value at 8.5% of Berkshire's invested assets.
If you're looking for a single reason why Warren Buffett is seemingly infatuated with Apple, you won't find one. Rather, you'll find four reasons why Apple is considered "a better business than any we own," according to Buffett.
To start with, Apple is one of the world's most-valuable and recognized brands. It has a loyal customer base that regularly flocks to its stores or goes online to purchase its new products. Buffett loves businesses whose brand is so wholesome/valuable that sales are practically generated on their own.
Secondly, Buffett and his investing team are big fans of Apple's innovation. While Buffett has previously joked that he doesn't understand how Apple's iPhone works, he does have a good grasp of consumer behaviors.? Apple's ongoing updates and upgrades to its flagship smartphone, as well as other physical devices, represent ways the company is bringing new customers into the fold and keeping existing clients loyal to the brand.
Warren Buffett also has complete faith in Apple's management team. While physical product innovation has continued under CEO Tim Cook, what's most important is that Apple is evolving into a platforms business. Continuing to shift more of its sales to subscription services should eventually provide a lift to Apple's operating margin, as well as smooth out the revenue vacillations often associated with major iPhone replacement cycles.
Lastly, Warren Buffett loves a hearty capital-return program. In addition to having one of the largest nominal-dollar dividend payouts on the planet ($15 billion) among public companies, Apple has repurchased in the neighborhood of $600 billion worth of its common stock since the start of 2013. These buybacks are increasing Berkshire's stake in Apple without Buffett or his team having to lift a finger.
The one and only stock Warren Buffett loves even more than Apple
But for all the praise the Oracle of Omaha bestows on Apple, there's another stock that's even more treasured.
A quick look at Berkshire Hathaway's second-quarter 13F clearly shows that none of the company's holdings even come close to challenging Apple, based on market value. However, if you go beyond the company's 13F and dig into its quarterly operating results, you'll find another stock that Warren Buffett and executive vice chairman Charlie Munger simply can't stop buying. The name of that company is... (cue the trumpets) Berkshire Hathaway.
Prior to July 17, 2018, Warren Buffett and Charlie Munger were only permitted to repurchase their own company's stock if the price-to-book value of Berkshire's shares fell to or below 120% (i.e., no more than 20% above book value). For well over a half-decade leading up to this key date, Berkshire's stock never dipped below this mark, leading to zero buybacks.
But on July 17, 2018, Berkshire Hathaway's board passed new measures that would allow Buffett and Munger more liberty to repurchase their company's stock. As long as Berkshire has at least $30 billion in cash, cash equivalents, and U.S. Treasuries on its balance sheet, and Berkshire's dynamic duo believes their company's shares are intrinsically cheap, buybacks can continue without a cap/ceiling.
Since the green flag began waving on this new buyback program, Buffett and Munger have been mashing the buy button with regularity. Buffett and Munger have bought back their own company's stock for 20 consecutive quarters, with the aggregate of these repurchases totaling in excess of $71 billion. That's nearly twice as much capital as has been devoted to buying shares of Apple since the start of 2016.
Since Berkshire Hathaway doesn't pay a dividend, this mammoth buyback program represents a way to reward the company's long-term investors. For example, retiring shares is incrementally increasing the ownership stakes of existing shareholders.
Additionally, Berkshire Hathaway's share repurchase program is having a positive impact on the company's earnings per share (EPS). Businesses with steady or growing net income (like Berkshire Hathaway) should see their EPS rise as the outstanding share count declines.
But most of all, buying back more than $71 billion worth of his company's stock is Buffett's way of demonstrating faith in the company he, Munger, and the rest of his investment team have built. Even though the Oracle of Omaha is viewed as a vital piece of the puzzle to Berkshire Hathaway's success, the investment ethos that's been fostered will be around long after the Oracle of Omaha is gone.
There's no question that Berkshire Hathaway is the one and only stock Warren Buffett loves even more than Apple.