The world’s most admired investor, Warren Buffet, made headlines as the price of class A shares of his holding company Berkshire Hathaway (BRK.A) crossed the algorithmic limit of $424,840 on May 5. BRK.A continued to rally to hit its $445,000 all-time high on May 7, making it the most expensive stock to date. BRK.A has gained 25.2% year-to-date, surpassing the broader S&P 500 index’s 10.8% returns over this period…
With a net worth of $109.90 billion, Buffett is one of the most successful investors of all time and is known for his fundamental value investing strategy. He preaches a long-term investing strategy in which investors should commit to holding a stock for extended periods, despite “investment noise” that may cause short-term fluctuations.
With rising inflation and the Treasury yields, the stock markets look less attractive now. The “Buffett indicator,” which is the Wilshire 5000 index to GDP, grew more than 25% from its all-time high in 2000 (during the dot-com bubble) in March this year. Despite the broader market overvaluation, Buffett is betting on several stocks from multiple industries that possess significant upside potential, backed by sound financials and industry tailwinds. Thus, we think Warren Buffett’s all-time favorite stocks—Apple Inc. (AAPL – Get Rating), The Goldman Sachs Group, Inc. (GS – Get Rating), DaVita Inc. (DVA – Get Rating) and Axalta Coating Systems Ltd. (AXTA – Get Rating) — could be solid bets now.
Apple Inc. (AAPL – Get Rating)
AAPL has been dominating the technology sector for decades. With a $2.13 trillion market capitalization, it is the most valuable company in the world and is ranked #4 in the Fortune 500 list. As of December 31, Buffett held 907.56 million shares of AAPL, representing a 5.4% stake in the company, as stated in Berkshire Hathaway’s latest 13K filing. Buffett had sold a portion of AAPL shares last year, which he deems as a mistake, as per reports from Berkshire Hathaway’s shareholder meeting earlier this month.
AAPL’s net sales increased 53.6% year-over-year to $89.58 billion in the fiscal second quarter ended March 27, 2021. This can be attributed to a 61.6% rise in revenues from its “Products” segment. Its operating income improved 114% from the same period last year to $27.50 billion. Its net income came in at $23.63 billion, representing a 110% rise from its year-ago value. Its EPS stood at $1.40, up 118.8% year-over-year. Shares of AAPL have gained 64.7% over the past year. However, the recent tech industry slump has seen the stock to decline 4% year-to-date.
AAPL has been expanding its operations to capitalize on the various industry tailwinds, including the electric vehicle (EV) boom and rising semiconductor demand. The company began using its customized M1 semiconductor chip in electronics such as laptops and iPads, which has reportedly improved their performance. As more and more people switch to Apple products given their higher efficiency, sales are expected to rise further in the future.
Also, AAPL has formally announced its plans to launch EVs with autonomous driving features in 2024. This allows the tech company a direct entry into the trillion-dollar EV industry, which is expected to grow at a 41.5% CAGR over the next six years. Because internal combustion vehicles are gradually being phased out, the EV industry is expected to be the next “big” thing in the automobile industry. On May 5, the company, in collaboration with II-VI, announced a $410 million additional investment in optical technology and LIDAR.
A $5.19 consensus EPS estimate for its fiscal year 2021 indicates a 58.2% improvement year-over-year. The company has an impressive earnings surprise history also; it beat the Street’s EPS estimates in each of the trailing four quarters. Analysts expect AAPL’s revenues to rise 29% from the same period last year to $354.10 billion in the current year.
It’s no surprise that AAPL has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor with each factor weighted to an optimal degree.
The stock has a grade of A for Sentiment, and B for Quality. Of the 48 stocks in the B-rated Technology – Hardware industry, AAPL is ranked #21.
Beyond what we’ve stated above, one can view additional AAPL Ratings for Growth, Stability, Value and Momentum here.
The Goldman Sachs Group, Inc. (GS – Get Rating)
GS is one of the world’s biggest financial services companies, with approximately $2.20 trillion in assets under supervision, as of March 31, 2021. GS has been a long-time favorite stock of Buffett. He acquired a $5 billion stake in the company in 2008. Berkshire Hathaway holds preferred shares of GS, which have a 10% annual dividend payout rate. However, Buffett sold off his stake during the pandemic last year as part of his plan to reduce exposure to the financial services sector. Buffett reduced his financial services company holdings by 16 percentage points to 27% in 2020.
As the financial services industry recovers at an accelerated pace in-part due to many companies going public in response to bullish stock markets, Buffett might increase his holdings in this sector again. GS’ business resiliency amid the notorious Archegos margin call earlier this year make it one of the most stable investment banks internationally. The company is currently…
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