Although purchasing the same stocks as Warren Buffett will not make you a billionaire, it can help you avoid some big mistakes. If you invested $1,000 in Berkshire Hathaway in year 1965, when Buffett took control, it would be worth around $28 million today. That is the consequence of buying excellent businesses at a discount to their inherent value.
Let’s take a look at two investment cases for Apple and Verizon Communications. These are two of Berkshire’s best holdings, and they might be excellent long-term investments.
Verizon meets Buffett’s criteria for a typical stock: an industry leader that produces consistent income and profits. The company was one of Berkshire Hathaway’s biggest holdings at the end of 2021. According to the most recent annual report, Berkshire has 3.8% of the total shares outstanding and a cost basis of $9.4 billion.
Verizon Wireless has the lowest churn rate among U.S. carriers, according to a 2017 survey from J.D Power and Associates. It provides fixed wireless services to 30 million homes in the United States, and it was one of the first companies to begin deploying 5G wireless technology. Management recently announced a goal of adding $14 billion in service and other revenue by 2025, which is expected to result in substantial growth. 5G mobility and nationwide broadband are anticipated to contribute over 75% of its growth by 2025.
Verizon’s exceptional service, coupled with a solid reputation, has helped it build up a large pool of pleased clients. This allows for annual recurring income and dividends to shareholders. Verizon earned $21 billion in profit on $134 billion in sales over the past four quarters. It granted half of its profits to investors, resulting in a dividend yield of 5.3 percent.
Verizon has increased its dividend for 15 years in a row, demonstrating the company’s financial durability and confidence in the future. Right now, it’s undoubtedly a tempting investment, with a P/E of nine and a mouthwatering dividend yield to boot.
Berkshire’s largest holding is Apple, which it owns 5.6 percent of as of the end of 2021. Buffett’s previous big bet on Apple may have paid off handsomely. At the end of 2021, Berkshire’s reported cost basis on its investment in Apple was $31 billion, with a market price of $161 billion. It already appears to be one of Buffett’s greatest investments ever.”
Apple appears to be another Buffett stock. There is no company that has a higher customer satisfaction and loyalty quotient than Apple. It’s a strong edge with 1.8 billion active devices. With millions of consumers having credit cards stored in their Apple accounts, the large installed base translates to rising demand for higher-margin app and subscription purchases.
Apple’s services business has been growing at a compound annual rate of 27% per year since the end of fiscal 2019. Apple generated $9 billion in revenue from services during the first three months of 2020, accounting for 20% of Apple’s total sales.
Services are making a profitable firm even more lucrative. On top of $386 billion in sales over the previous four quarters, it produced $105 billion in free cash flow. It paid out about 14% of its profits as dividends, which brought the dividend yield to 0.58 percent.
Apple isn’t as cheap as Verizon, but at a price-to-earnings ratio of 25.6, it’s hard to argue that Apple stock is overpriced. Given Apple’s brand power and growth prospects, it appears fairly valued, in my opinion.