This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Warren Buffett has said that when he evaluates companies for investing, he stays within a circle of competence -- meaning he evaluates companies in areas that he fully understands. That's why before becoming an investor in the company hosting the largest e-commerce platform in the world, he originally missed out. A similar story is behind his investment in the company which stands -- at 43.7% -- as the largest holding in Buffett's Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) portfolio.
These companies are two of the largest in the world by market cap and are led by innovative visionaries developing devices and platforms that are likely to expand and continue to grow profits based on business models that generate recurring revenue that should keep investors happy for the long haul.
1. A golden, delicious Apple
To truly understand the magnitude of Apple's (NASDAQ: AAPL) innovations and the gains it has brought investors, it's important to understand from the beginning of the climb to where we are now. Steve Jobs was the CEO of Apple from 1997 to 2011. During that time, the company developed the Apple Store, iMac, iPad, iPod, and iPhone. The stock was at a split-adjusted $0.19 in August 1997 before climbing 7,132% to $13.74 by August 2011, just prior to Tim Cook taking over the helm for his friend and colleague.
Since Cook has taken over, the company has continued on its visionary path, rewarding investors along the way with over 1,000% stock price growth. The company has provided consumers with upgrades on the devices Jobs oversaw, while also developing new products and services, including AirPods, Apple Watch, Apple Music, and Apple TV+. And dare I say, in the next few years we may see an Apple Car.
One of the biggest investors being rewarded is Warren Buffett. Some might say Buffett was a bit late to the game since Berkshire didn't start gobbling up shares of Apple until 2016. But be that as it may, the stock price has grown by 500% since then, and Apple stands far above the rest of his Berkshire portfolio holdings at nearly 44% of the total value, followed by Bank of America at 13%, and Coca-Cola -- which Buffett claims he will never sell a share -- at 7% of the portfolio.
Cook has said that the company is run for the long term and identifies Buffett as the ultimate long-term investor. That longevity certainly seems to be paying off for Buffett, not only in terms of share price but also in reaping the rewards of dividends. In 2021 Buffett soaked in over $3 billion in dividends alone, led by each of his three top holdings, which average a 1.9% dividend yield, topping the 1.27% yield of the S&P 500 as of Dec. 31 and above the long-term average for the S&P 500 yield of 1.86%.
Perhaps one takeaway from Buffett's late foray into Apple is that the best is yet to come for investors, which we are already seeing hints of. Quarterly services revenue is growing at record pace; a new mid-tier 5G iPhone is coming; Apple is cranking out its own M1 chips, with performance improvements being developed to go along with its new Mac Studio desktop; and Apple TV+ is bringing on live sports events. With all of these developments to go along with an iPhone ecosystem that Buffett refers to as sticky, it seems that it's never too late to invest in Apple.
2. Amazon just gave investors 20 more reasons to buy
A topic repeatedly talked about but rarely acted on, is a stock split for Amazon (NASDAQ: AMZN). Now, investors are rejoicing at the news of a pending 20:1 split. But before we go there, let's take a look at why Amazon was already a Buffett holding for the long haul.
Berkshire Hathaway invested in Amazon in two waves during 2019, but it wasn't Buffett who made the purchase, it was one of his Berkshire partners. So if you took a pass on Amazon earlier on, don't feel too bad. It happens to literally the best.
Since the time Berkshire jumped in on Amazon in 2019, the stock has grown roughly 52%. To look at in dollars, a $10,000 investment would be worth $15,000 today -- less than three years later.
Amazon grew net sales in 2021 by 22% year over year, resulting in a net income increase of 55% driven by a growing and successful pipeline. The company's products include virtual assistant technology, home security, a leading e-commerce platform with recurring Prime subscriptions, video streaming, grocery, healthcare, and web services, which has grown exceptionally well at 40% year over year.
As we end the first quarter amid a broader market decline, Amazon appears focused on its stock price and expanding its pipeline. The company announced that it is buying back $10 billion of its stock, which can signify that the company believes its stock is at a discount to its true value. It can also boost investors' confidence, resulting in a quick spike in the stock price.
Another action that causes a quick spike is a stock split. In fact, the day after announcing the buyback and a 20:1 split -- its first split since 1999 -- the stock price jumped by 5.5% overnight.
Now the company is moving forward with new entertainment, including movies, series, and an 11-year contract to stream a full slate of the NFL's Thursday Night Football, which is expected to bring in hundreds of millions of dollars from new Prime subscriptions, subsequent member purchases, and ad revenue.
It also puts Amazon in a position to take over the full Sunday NFL ticket as more and more cable and satellite TV subscribers switch over to streaming services.
Buffett may not have been the one to pull the trigger on purchasing shares of Amazon for Berkshire, but he does know a great company when he sees one. Even after a recent pop in stock price to $2,936 per share, investors still have an opportunity to buy shares in this revolutionary company at a 43% discount to analysts' average 12-month price target. Better late than never.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
