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Warren Buffett Bets Big on Apple: Buy These ETFs

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Apple (AAPL - Free Report) stock should taste sweeter on news of billionaire investor Warren Buffett’s outright backing. Buffett’s Berkshire now owns more than $91 billion in Apple shares, representing 43% of the conglomerate’s entire portfolio.

Per the article on MarketWatch, there are 46 securities in the portfolio, and if added — not including the second biggest holding, Bank of America (BAC) — they still don’t match the Apple stake. Recently, Warren Buffett said, “I don’t think of Apple as a stock. I think of it as our third business.” “It’s probably the best business I know in the world,” said Buffett.

So far this year (as of Jul 14, 2020), Apple has jumped 30.1% compared with 2.3% losses recorded by the S&P 500.

What About Apple’s Business Model?

The company is benefiting from continued momentum in the Services segment, driven by strong App Store sales and robust adoption of Apple Music and Apple Pay. Non-iPhone devices, particularly Apple Watch and AirPod, are the other notable drivers in the long haul.

iPhone sales may not be the real attraction of Apple now as store closure amid the pandemic has hurt phone sales. Apple reportedly paid Samsung a $950 million penalty for not ordering enough OLED panels in line with the contract.

On the contrary, iPad and Mac revenues are expected to improve but lower economic activity may hurt AppleCare and advertising businesses. However, Apple’s focus on autonomous vehicles and augmented reality/virtual reality technologies presents growth opportunity for the long haul.

What About Upcoming Earnings?

Apple is set to report earnings on Jul 30 and analysts are bullish on the stock. One analyst upped the estimate in the past seven days, one upped the same in the past 30 days and three analysts raised estimates in the past 60 days. None of the analysts has lowered the estimates. The current EPS estimate for the upcoming quarter earnings stands at $1.97 versus $1.96 seven days ago and $1.94 seen 60 days ago.

What Do Indicators Say About Apple’s Value Status?

Going by valuation metrics, P/E (ttm) of AAPL is 30.1 times versus the industry-average of 24.3 times. Forward P/E of AAPL is 31.1 times versus the industry score of 23.9.8 times. Though these measures point to higher valuation of Apple than the industry, a higher P/E is always not a sign of worry. It shows investors’ confidence in a particular stock among the bunch.

Investors should note that return-on-equity of Apple is 64.5%, higher than industry average of 52.5%. Plus, both return-on-assets and return-on-capital of Apple are higher than the industry measures. The estimated 3-5 year EPS growth of Apple is now 11.0% versus 7% of the industry measure.

The above-said numbers explain why Buffett is betting big on Apple shares in his portfolio. Investors should note that the AAPL stock has a Zacks Rank #3 (Hold). It has a Growth Score of B at the time of writing with a Momentum Score of A and Value Score of C.

Shareholders Value Maximization Even Amid Pandemic

Apple’s board also authorized $50 billion for share repurchases in addition to more than $40 billion authorization remaining under its current share repurchase plan. In May, the company also raised its quarterly dividend by 6%.

Are ETFs Better Bets?

Investors intending to follow Warren Buffett but still wary of the somewhat slowing sales of iPhones may take the ETF route. This is because ETFs helps investors to mitigate one company’s average performance with the other companies’ stellar results.

Below we highlight a few ETFs with heavy exposure to Apple for investors seeking to bet on the stock with much lower risk.

iShares Dow Jones US Technology ETF (IYW - Free Report) – APPL takes the second spot with 18.66% weight. The fund has a Zacks Rank #1 (Strong Buy).

Select Sector SPDR Technology ETF (XLK - Free Report) – APPL holds the second spot with 21.45% weight. The fund has a Zacks Rank #1 (read: 5 Best-Performing Stocks in Ultra-Popular Tech ETF (XLK - Free Report) ).

Vanguard Information Technology ETF (VGT - Free Report) – APPL occupies the first location with 18.1% weight. The fund has a Zacks Rank #1.

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