1 stock makes up 38% of Warren Buffett’s portfolio! Should I buy it?

Warren Buffett has done it again! That’s legendary Berkshire Hathaway CEO outperforms the market in 2022. The company’s share price has increased by 3% in 12 months. S&P 500 index down 20%.

I think it’s definitely worth keeping an eye on what Buffett bought as inspiration for my own portfolio. After all, the success of investing in the stock market over the decades may be unparalleled.

With this in mind, it’s important that one company outperforms Berkshire’s other holdings. I’m talking about US tech titans Apple (NASDAQ: AAPL).

The highest value of Warren Buffett’s stock

Apple represents about 38% of Oracle of Omaha’s portfolio by market value, according to its latest filing. He has a stake in the smartphone maker since 2016.

One reason I believe it is so dominant in Berkshire’s portfolio is the stunning performance of Apple’s stock price since Buffett first took the position. Shares in the world’s most valuable company have risen more than 200% in the past five years.

Berkshire’s second and third largest positions in Bank of America (11%) and Chevron (10%) smaller than compared. What’s even more surprising is that Buffett has also made a profit. He sold more than 10% of his Apple position in the past 10 quarters.

I can see why billionaire investors are fans of Apple stock. It is a recognizable global brand with a large digital ecosystem designed to maintain consumer loyalty. This translates into huge profits.

This business has several pole positions in the US, but I am especially encouraged to see it broke a new record in China recently. Apple’s market share in China reached 25% in October. This means that one out of every four smartphone devices sold is an iPhone.

In addition, the company’s pricing power has allowed it to increase its gross profit, offsetting the headwinds of the strong dollar and rising inflation. The combined gross margin for products and services was 43.3% in 2022, up from 38.2% in 2020.

Risk

Apple stock is not without risk. The company’s supply chain remains a problem. More than 90% of these products are manufactured in China. The Chinese Communist Party’s handling of the pandemic has been a mess. The recent U-turn on the ‘zero Covid’ policy has led to a rise in cases.

There is also the potential for a future flashpoint if China invades Taiwan. Russia’s invasion of Ukraine is a reminder that the current geopolitical order is fragile. If there is a military escalation in Taiwan, I would not be surprised if Western countries impose sanctions. This could hurt Apple’s growth prospects.

The price also seems quite high. At a price-to-earnings (P/E) ratio above 21, Apple is trading at a premium compared to the S&P 500. A global recession could hit demand for the company’s products. The combination of a high P/E ratio and sluggish growth suggests the stock could decline again, adding to a 29% decline in 2022.

Should I buy Apple?

Despite the risks, Apple looks attractive to me. The company has a history of beating the competition through innovation. I see some signs other companies will change.

I am wary that the stock price may fall in 2023. To speed up the journey, I am dollar cost averaging (investing the same amount of money at regular intervals) into the stock, taking advantage of the buying opportunities that occur.

I will buy the dips, keeping an eye out for stock price movements after the earnings release on January 26th.