1 Warren Buffett stock I’ve been buying in 2023

One of Warren Buffett’s most important principles is that investing doesn’t take an extraordinary IQ. In other words, they believe in keeping it simple when it comes to investing.

I have applied this principle to my own portfolio. With the share price lower than at the start of 2022, I am keeping it easy in 2023.

As a result, I have bought shares in it Apple (NASDAQ:AAPL). With the stock down about 28% over the past year, I really don’t feel the need to pursue anything more creative.

Share Apple

Apple is Buffett’s favorite stock. It is the biggest investment Berkshire Hathaway portfolio.

It’s not hard to see why. The company has a good business model and makes a lot of money.

Apple’s business basically consists of two parts. There is a hardware division and there is a service operation.

The product division has lower margins but generates around 80% of the company’s revenue. Service businesses generate low profits but have higher profits.

Together, this creates a business that generates $119.5bn using only $42bn in fixed assets. The ecosystem is also difficult to move, generating significant recurring revenue.

Any investment carries risks and Apple is no exception. The company’s exposure to China in terms of manufacturing and customer base is something I will look into.

In my mind, the business is clearly very strong and – with net cash of $49bn – the balance sheet looks good to me. Furthermore, I think it is trading at a low price right now.

Evaluation

In my view, Apple stock is trading at a price that is in line with the cash the business is generating. The company has a total stock market value of $2.1trn and generates $111bn in free cash each year.

Factoring in the company’s cash and debt, the return on investment is around 4.7%. Is it good?

The answer depends on what returns are offered elsewhere. In particular, it depends on what I can get from buying bonds that will give me a return for the next decade.

Currently, the return on UK government bonds maturing after 10 years is about 3.5%. Compared to that, I think the 4.7% return from Apple shares is quite attractive.

Of course, there is a chance that bond yields could go higher over the next few years. Inflation in the UK is still rising, so I expect interest rates to rise again as a result.

But I expect Apple’s free cash flow to increase as well. In addition, the company is aggressively buying back shares, which should amplify the effect.

That is why I have bought stocks for my portfolio. It has reached a level where I expect investment returns to outperform bonds over the long term.

The shares I bought

I stick to Warren Buffett’s approach and look to avoid overcomplicating it in 2023. With the stock down, I hope for more opportunities to buy shares in quality companies at a decent price.

Now, that means buying shares in Apple. I have increased my investment in the company this week and I plan to continue doing so.