Motley Fool - Thu Mar 2, 2023
You might think that "Warren Buffett" and "tech stocks" go together like a plaid shirt and a polka-dot tie. As you process that visual image, allow me to try to change your mind.
Sure, the legendary investor has missed out on buying some of the biggest tech stocks early on because he thought they were outside his wheelhouse. However, Berkshire Hathaway's (NYSE: BRK.A)(NYSE: BRK.B) portfolio now includes quite a few tech stocks.
Buffett even owns three of the five FAANG stocks. And he especially loves one of them.
The runners-up
Buffett doesn't own any shares of two FAANG stocks -- Meta Platforms (formerly known as Facebook) and Netflix. Berkshire does have a stake in Markel, which holds positions in Meta and Netflix. However, neither would be considered a Buffett stock in any sense.
You won't find Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL) listed among the shares in Berkshire's portfolio. Buffett actually does have a stake in this tech giant, though. His "secret portfolio" initiated a position in Alphabet's class A shares in the fourth quarter of 2022.
What is Buffett's "secret portfolio"? Berkshire Hathaway owns a subsidiary, New England Asset Management (NEAM), that's an investment firm. NEAM manages its own portfolio. Any stocks that it owns, Buffett owns by extension.
Berkshire's portfolio does include another FAANG stock, though. In 2019, one of his investment managers bought shares of Amazon(NASDAQ: AMZN). It's a relatively small position, making up roughly 0.3% of Berkshire's total portfolio.
Buffett's favorite FAANG stock
While Buffett indirectly owns shares of Alphabet and went along with either Todd Combs or Ted Weschler in buying Amazon, there's another FAANG stock that's his hands-down favorite: Apple(NASDAQ: AAPL), without a doubt.
Apple ranks by far as Berkshire Hathaway's biggest holding. It makes up over 41% of the conglomerate's total portfolio, including shares owned by NEAM.
Buffett even referred to Apple as one of Berkshire's "four giants" in his 2021 letter to Berkshire shareholders. Apple was the only "giant" that wasn't wholly or majority owned by Berkshire. Buffett noted that Berkshire received $785 million in dividends from Apple in 2020 alone.
If there's any remaining question that Buffett loves Apple, consider what he's said about the company. For example, he stated in an interview with CNBC in 2020: "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."
Spreading the love
As big as Berkshire's stake in Apple is already, it doesn't appear to be enough for Buffett. He bought shares of only four stocks in the fourth quarter of 2022; Apple was one of them.
But is Apple a FAANG stock that other investors should love, too? There's a good case to be made that it is.
Apple does face some challenges. The company's revenue fell 5% year over year in its latest quarter. iPhone sales tumbled 8%. Apple's services revenue continues to grow, but the rate of growth has slowed. However, all of this is due primarily to macroeconomic headwinds that should only be temporary.
CEO Tim Cook stated in Apple's recent quarterly update:
The iPhone has become so integral into people's lives. It contains their contacts and their health information and their banking information and their smart home and so many different parts of their lives, their payment vehicle and -- for many people. And so I think people are willing to really stretch to get the best they can afford in that category.
I think that Cook is exactly right. If so, Apple should be able to continue growing its iPhone ecosystem for years to come as it rolls out new products. There are lots of innovations that could spur massive buying waves, including foldable iPhones, support for augmented reality, and the potential rollout of 6G wireless networks within the next decade.
Tech stocks might be outside of Buffett's wheelhouse. However, solid business models with strong moats aren't. He loves Apple not because of its technology, but because of its business model and moat. Those are pretty good reasons for investors who aren't billionaires to love the stock, too.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Keith Speights has positions in Alphabet, Amazon.com, Apple, Berkshire Hathaway, and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Apple, Berkshire Hathaway, Markel, Meta Platforms, and Netflix. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
