APPLE STOCK - LONG TERM ANALYSIS - WHY IS BUFFETT BUYING? | Summary and Q&A

TL;DR

Buffett is buying Apple stock because he sees potential in its loyal customer base, growing services revenue, and a strong return on invested capital.

Key Insights

• 🐕‍🦺 Apple's loyal customer base and potential for growth in services revenue make it an attractive investment for Buffett.
• ✋ The company's net profit margin of 21% is one of the highest in the market.
• ❓ Apple's stock price has the potential to reach $640 if it continues on its current trajectory.
• 🍉 Analysts' short-term focus on Apple's capital structure and product cycles may overlook the long-term potential of the company's ecosystem.
• 😘 Compared to other tech giants, Apple has a lower price to earnings ratio and is the most profitable.
• 🍉 Buffett's investment in Apple demonstrates his belief in their long-term success and potential for above 10% returns.
• ❓ Apple's augmented reality and expanding ecosystem offer additional growth opportunities.
• 🛀 A comparison of customer bases shows that Apple has a sizable user base, making it an appealing investment.

Transcript

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Questions & Answers

Q: Why is Warren Buffett buying Apple stock?

Buffett sees potential in Apple's loyal customer base, growing services revenue, and a strong return on invested capital. He believes the stock can deliver a 10% or higher return in the long term.

Q: What is the significance of Apple's loyal customer base?

With 92% of iPhone customers and 96% retention rate, Apple has a vast ecosystem of loyal customers. This gives Apple the opportunity to increase their services, like Apple Pay, and grow their revenue.

Q: How does Apple's net profit margin compare to other companies?

Apple has a net profit margin of 21%, which is one of the best returns on invested capital in the market. This shows the company's ability to generate profits from its investments.

Q: How does Buffett's investment thesis translate into potential stock price growth?

Based on a model, if Apple continues to grow its net income by 10% over the next decade and buys back shares, it can result in earnings per share of $32.49. With a price earnings ratio of 20, this could lead to a stock price of $640 and a market capitalization of $2.5 trillion.

Summary & Key Takeaways

• Apple is now Warren Buffett's biggest position, accounting for 40.6% of his stock holdings.

• Buffett sees potential in Apple's loyal customer base of 1.3 billion devices and their willingness to buy Apple products again.

• The growth of Apple Pay and services revenue, along with a strong return on invested capital, contribute to Buffett's confidence in the stock.