Warren Buffett is the legendary investor famed for his decades of success picking stocks such as Apple and Coca-Cola. Here are two shares owned by the company Buffett runs, Berkshire Hathaway. I would consider adding both of these Warren Buffett stocks to my portfolio today.
Apple of my eye
For a long time, Buffett famously avoided tech stocks. It wasn’t that he didn’t think they might be attractive, but simply that he didn’t properly understand them. One of the keys to Buffett’s success has been staying within his circle of competence when making investment decisions.
Then, several years ago, Buffett piled into Apple and it has been a very lucrative holding for him. Having paid around $36bn for it, the Apple holding was valued in a Berkshire filing this year at $133bn. That’s a huge gain.
Warren Buffett stocks and timing
Berkshire has sold down some of its Apple stake, even though Buffett likes to hold shares for decades.
That may seem like a bad sign. But bear in mind that Buffett is still sitting on over $100bn of Apple stock. I think the sales may be a prudent way to ensure that, even as the Apple share price grows, it doesn’t become too dominant a constituent in the Berkshire portfolio. Keeping a diversified range of investments is a common risk management strategy.
I continue to see upside for Apple even at current prices. It has large pricing power, a big installed base and a history of finding ancillary revenue streams from its users. While that formula is simple, I think it can help fuel ongoing profit growth in years to come. One risk is that the company’s premium priced products lose appeal as much cheaper competitors increase their global reach.
A Berkshire buy
One Warren Buffett stock purchase that might surprise some observers is: Berkshire Hathaway itself.
Why has Berkshire been buying its own shares? I think it is because Buffett thinks that they offer good value at the current Berkshire Hathaway share price. Over time, a company that repurchases its own shares usually cancels them, which means the earnings are distributed among a smaller number of shares. That boosts earnings per share. While Buffett has been a critic of overpriced share repurchases, there is a sound logic for share repurchase at the right price, in my opinion.
If the Berkshire Hathaway leader thinks that the shares offer good value right now, that makes it an interesting choice for me to consider. I am attracted by the company’s broad range of income strength. Its model is highly cash generative, which in turn can fuel further acquisitions or share purchases in future.
One risk with Berkshire Hathaway stock is management succession. Buffett turns 91 this month and when he steps down at some point, it will be difficult to find a new leader with similar investing knowledge and expertise. That could lead to lower future profits.
