I already own some Apple stock in my portfolio. And it has been a great investment since I bought it. Should I buy more shares after the recent fall?

Is the stock cheap?

Let’s begin by looking at Apple’s current valuation to set the scene.

At present, Wall Street analysts expect the tech giant to generate earnings per share (EPS) of $6.44 for the year ending 30 September 2023. This means that at Apple’s current share price of $144, the forward-looking price-to-earnings (P/E) ratio here is about 22.

Is it worth that kind of multiple? I think so.

A world-class company

Apple is very much a high-quality company.

For a start, it has a wide range of products that consumers love and depend on (iPhone, iPad, MacBook, iMac, Apple Watch and more). What’s great about these products is that they all talk to each other. This creates a competitive advantage. As a result of this ‘ecosystem’, consumers are less likely to switch to a competitor’s product.

This isn’t the only competitive advantage Apple has though. Another is its brand – which is synonymous with quality, performance and innovation. According to research by Kantar BrandZ, Apple is the most valuable brand in the world.

It also has long-term growth potential. Recently, the company has been moving into areas such as electronic payments and healthcare. And there are rumours that it’s working on a fully autonomous self-driving vehicle. So, while the smartphone market may be saturated, there’s still a long growth runway ahead.

Finally, its financials are rock solid. This is a company with a strong balance sheet and a high level of profitability (return on capital employed was 48% last year). It also pays regular dividends and has been buying back a ton of its own shares recently.

Given its high-quality attributes, I think Apple deserves a premium valuation.

Consumer spending is the big risk

Of course, there are risks to consider.

I think the biggest risk to consider right now is a pullback in consumer spending. This could have a negative impact on Apple’s sales and profits in the short term. If sales and earnings were to miss analysts’ estimates (Q4 earnings are due next week), the stock could experience further weakness.

However, as a long-term investor, I wouldn’t be too concerned if the share price was to fall another 10% or 20% from here in the near term due to weaker-than-expected earnings. If I was to buy more Apple stock, I’d be looking to hold it for the next decade. And I think the chances of the stock delivering solid returns over that kind of timeframe are quite good.

My move now

So in conclusion, I’d be willing to buy more Apple stock at the current price. It’s probably not the first stock I’d buy right now, as I already have quite a large position here. I don’t want to be overexposed to it.

However, if the stock stays at this price for a while, or heads lower, there’s a good chance I’ll be adding to my position. I like the long-term growth story.

Big Apple

If I’d invested £1,000 back then, the stock would have generated a return of approximately 130% on my investment. To complement this, the Nasdaq-listed firm pays a dividend, which would increase my overall return by an additional $55.44, bringing the total return to around £2,800. This is what it would translate to in real income, inclusive of exchange rates, but excluding broker fees and capital gains tax.

Although the growth of Apple stock is approximately 130%, investing over three years ago would have grown my investment by more than two times. That’s because of the impact of a weak pound and strong dollar today. If I compare this to the performance of the US’s three main indexes, Apple stock still outperforms by quite a substantial margin, even excluding dividends.

Stock up on Apple?

The stock has been performing rather poorly this year. This is due to bear market conditions as a result of high inflation and rising interest rates, sparking fears of a recession.

But CEO Tim Cook will be reporting the firm’s Q4 results later this month. Here are its earnings estimates going into its Q4 earnings release. Beating earnings estimates and a decent outlook going into its next financial year could send its share price higher and recover some of its losses this year.

Taking a bite

Will I be buying Apple stock any time soon then? Well, for starters, the iPhone owner has an excellent history of producing excellent returns consistently. And it’s been able to grow its revenues and profit margins over the last decade. As a matter of fact, Warren Buffett is such a huge fan of the stock that it makes up 40% of Berkshire Hathaway‘s equity portfolio.

However, it’s worth pointing out that the firm’s balance sheet could do with some improvement. Its debt-to-equity ratio is considered to be relatively high, at over 200%. This is especially worrying when it has $127.5bn worth of debt to pay within the next year, with only $51.5bn worth of cash and $45.4bn worth of receivables due within a year.

Nonetheless, Apple stock has a market cap of $2.28trn, so raising cash through a small stock offering (leading to stock dilution) shouldn’t be too big an issue. Even so, I’m wary that the current recessionary backdrop could force Apple to dilute shareholders more than expected as consumer spending slows down.

Although past performance is no indicator of future returns, the company still has a lot going for it, and I don’t see Apple losing its place as the world’s number one brand for electronics soon. Even Morgan Stanley has labelled it a top stock pick in the event of a US recession. Therefore, with an average ‘strong buy’ rating and price target of $182, I’ll be using the current bear market as an opportunity to start sinking my teeth into Apple stock.

Despite having a longstanding aversion to tech stocks, five years ago the Oracle of Omaha doubled down on the world’s most valuable company. Berkshire Hathaway increased its stake to 134m shares, up from the 57.36m it held in 2016.

So, how much would I have today if I’d invested £1,000 in Apple half a decade ago?

Five-year returns

First, let’s examine the dramatic increase in the Apple share price over the past five years. At a whopping 275%, I’d have made a handsome return. My initial £1,000 investment would have ballooned to £3,750 today. For context, the S&P 500 only managed a 47% gain over the same time period and the FTSE 100 suffered a 7% loss.

But share price gains are not the full story. The company has also distributed dividends over this time period. Admittedly, the annual yield hasn’t been huge — it ranges from between 0.6% and 1.4% over the past five years. However, it’s notable that other tech titans, including Alphabet, Amazon, and Meta, don’t offer dividends at all.

Following a dividend reinvestment plan, my total return from holding Apple stock for five years would be just above £3,952 today, nearly quadrupling my original investment!

What did Warren Buffett do with Apple stock?

Over the past half-decade, Buffett has consistently bought Apple stock. Admittedly, in 2020, the legendary investor sold some of his position as the pandemic struck. However, this year Berkshire Hathaway has returned to form, scooping up millions of additional shares over the first two quarters.

It’s probably the best business I know in the world.

Warren Buffett on Apple

Today, the company represents roughly 40% of Berkshire’s portfolio — its largest stock market holding. Buffett has consistently heaped praise on the business over the years. He has described the iPhone as “enormously under-priced” and championed its status as a ‘sticky’ product that keeps consumers within Apple’s ecosystem.

More recently, it’s been a turbulent ride. Heavy selling in US markets has seen $36bn wiped off Berkshire’s stake in 2022 with the stock tumbling 20%. Nonetheless, the fact that Buffett has been taking a further bite of the Apple with his share purchases this year suggests the investor sees fresh value in his favourite stock.

Would I buy today?

I’ve been reluctant at times to invest in Apple, wary of the fact that the stock is often reaching new all-time high prices. The prospect of heightened downside risk by investing in the company at sky-high valuations has dissuaded me from entering a position thus far.

Today, the situation is a little different. A big drawdown in Apple shares during the bear market stateside makes the risk/reward profile more attractive in my view. A more reasonable current price-to-earnings ratio just above 24, when compared to its historical average, looks appealing.

Despite the risk of further pain ahead if the US economy enters a recession, I’d follow in Warren Buffett’s footsteps and buy Apple stock today.

I’ve recently added Apple shares to my own portfolio. Last week, I invested £6,500 in Apple stock.

For a portfolio like mine, that’s a significant investment. But I think it will prove to be a good one over time.

Apple has everything that I’m looking for in an investment. It’s a great business, and I think I’ve managed to buy the shares at a decent price.

The business

What makes Apple a great business? For me, it’s the company’s ability to produce cash.

Apple generates significant cash. More importantly, its operations don’t require the company to reinvest much of that cash to fund growth.

Over the last 12 months, Apple’s operating income came in around $118bn. The crucial point, though, is that the company managed to produce this using just $40bn in tangible assets.

The company therefore doesn’t use much cash in its operations. As a result, 91% of Apple’s operating cash becomes free cash that can be distributed to shareholders.

Compared to other businesses, that’s impressive. Microsoft converts 73% of its operating cash to free cash and for Meta Platforms, the number is 61%.

Price

Apple has a terrific brand and that allows it to produce impressive business metrics. But it’s had those for a long time and I’ve only recently decided to buy the stock.

The reason is that the stock has only recently fallen to a price that I consider attractive. Following a 17% decline since the start of the year, Apple’s share price reached $149.

At the Berkshire Hathaway Annual Meeting, Buffett said that he would buy the stock at $150 or lower. I also think that the stock is cheap at that price.

A per share price of $150 puts the entire company at just over $2.4trn. According to its most recent balance sheet, Apple also has just under $125bn in debt and around $35bn in cash.

That gives the company an enterprise value of $2.5trn. Against that, a free cash return of $107bn amounts to a business yield of 4.28% annually.

At that price, 8% growth over the next decade achieves an average annual return above 6%. A more optimistic 12% annual growth takes the return to 7.5%.

Is that achievable? I think so – Apple has grown its free cash flow per share by an average of 17.5% annually, so continued growth of between 8% and 12% seems reasonable to me.

Apple shares

As with any investment, Apple stock carries risk. In a recession, the company’s consumer-focused products might not sell as well. Over time, though, I expect the company to perform strongly. The smartphone market is growing and I expect the company to benefit from this.

I don’t know where the price of Apple shares will go from here – it might fall further. If it does, I’ll be happy to buy more.

How does the Berkshire Hathaway CEO assess intrinsic value? According to Buffett himself:

If you attempt to assess intrinsic value, it all relates to cash flows. The only reason for putting cash into any kind of investment now is because you expect to take cash out. Not by selling it to someone else, because that’s just a game of who beats who, but by, in a sense, what the asset itself produces. That’s true if you’re buying a farm, it’s trut if you’re buying a business.

As Buffett sees it, the intrinsic value of a business has nothing to do with what its share price will be in the future. Instead, it is solely a function of the cash the business will produce.

Earnings

Take Apple (NASDAQ:AAPL) as an example. The company produced $6.05 in earnings per share this year and this is forecast to rise to $6.90 by 2024.

For Buffett, the intrinsic value of Apple shares has nothing to do with what its share price will be in 2024, or what its price-to-earnings (P/E) ratio will be. Rather, it is just a matter of how much the company makes. 

Right now, Apple stock trades at $157. According to Buffett, if the company produces $6.90 in 2024, then the return for an investor who buys shares today will be 4.39% in that year.

Importantly, it has nothing to do with whether the share price will be $140, $160, or $190. That, for Buffett, is a game of who beats who, not investing.

A stock I’m buying

Put simply, Buffett attempts to calculate the intrinsic value of a business by comparing the cash it will generate in the future to its current price. When I do this, there’s a stock that clearly stands out to me as a bargain right now.

That stock is Meta Platforms (NASDAQ:META). It’s a stock I own in my portfolio and I think that its shares are undervalued at the moment.

At the moment, the risk to the company is its Reality Labs segment. Last year, Meta spent around $10bn on its metaverse business and it will be some time before that investment is expected to pay off.

In my view, however, the current share price more than justifies the risk. Despite its significant metaverse spend, the company generated $35bn in free cash last year.

What does that mean by Buffett’s standards? It’s a return of around 8%, which I think is attractive with interest rates solidly below 3%.

The price for the entire business is currently just under $438bn. But the company also has $16.6bn in cash and $13.9bn in debt.

That gives a value for the whole business of around $435bn. Against this, an annual return of $35bn looks strong to me.

The share price might go anywhere, but that’s not how Warren Buffett thinks about his investment returns. Despite its significant capital expenditures, Meta Platforms generates huge amounts of cash, which is why I’m buying shares at these prices.

I’m looking for two things. The first is a high-quality business and the second is a price that is currently too high but might fall to a level that interests me.

There are two companies on my radar at the moment that meet these conditions. The first is a UK industrial company, the second is a US tech stock.

Halma

The first of my stocks to buy in a market sell-off is Halma (LSE:HLMA). This is a FTSE 100 stock that I’ve had an eye on for some time, but I’ve never seen it at a price that I thought was attractive.

Over the last five years, Halma has been one of the best-performing stocks in the index. Its share price has increased by 95% since 2017.

The stock has had something of a reversal of fortunes this year, though. Halma shares are down 31% since January.

I think that the underlying business is terrific, though. When Halma reported earnings in June, income was up 15% from the previous year and revenues were 17% higher.

A lot of Halma’s growth comes from acquiring other businesses. This brings risk in the form of the possibility of overpaying for acquisitions.

As a result, I’m looking for a price below £20 per share before I buy the stock for my own portfolio. That price implies an earnings yield above 3%, which is what I’d be looking for in this type of stock.

Apple

My other stock to buy in a stock market downturn is Apple (NYSE:AAPL). At $167 per share, the stock is a bit expensive in my view, but I’d buy shares for my portfolio if the price came a bit lower.

I think Apple is an outstanding business. The company generates around $118bn in cash and uses less than 10% of this on capital expenditures.

The risk with Apple is that its growth is somewhat slow. With earnings forecast to grow around 10% annually over the next five years, the stock looks expensive.

I don’t think this is a sign that the company has hit a ceiling, though. Apple currently accounts for around 18% of the smartphone market, which leaves plenty of room for further growth.

A couple of months ago, the stock was trading at around $130 per share, which I think is an attractive price. But a strong recovery has moved Apple shares beyond the price I’d be willing to pay for them.

Apple is Warren Buffett’s largest stock investment and I have some indirect ownership of the business by owning Berkshire Hathaway shares, but in a market sell off, I’d buy the stock directly.

During his time as CEO of Berkshire Hathaway, the Oracle of Omaha has produced mouth-watering returns – double that of the S&P 500.

Along the way, Buffett has dropped nuggets of advice that I believe all investors should seriously consider when stock picking. Here are three pieces I’d use for my portfolio.

Buy the business

A lot of people judge their decisions based on the share price of a company. However, Buffett has stated in the past that it’s more important to focus on the strength of the business itself.

What this means is that he doesn’t necessarily buy stocks solely because they have a low valuation, for example. Instead, he looks more widely at whether he deems a stock attractive due to its core business features.

If this is the case, Buffett can then assess whether the share price offers value. This again doesn’t mean it’s just ‘cheap’ – but that he sees potential for growth.

Long-term outlook

As well as this, he also buys stocks for the long run. As he once said: “if you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes.”

Investments will undoubtedly go through volatile periods. But with a long-term perspective, these short-term headwinds are almost irrelevant.

Be greedy

Finally, Buffett has also talked of the ability to “be greedy when others are fearful” as a powerful tool to maximise returns.

The declines we’ve seen in global markets this year are obviously an issue. However, with Buffett’s advice, these declines also become an opportunity.

With many attractive businesses taking hits, now could be the perfect time for me to pile in.

These in action

With these in mind, it makes sense why Apple (NASDAQ: AAPL) is Berkshire’s top holding. The majority of people could tell you the value of Apple’s products and services, showing the strength of the business. And with the stock down 4% in 2022, this may be an opportunity to grab some shares.

On top of this, while past performance is no indication of future returns, the last five years have seen Apple stock rising 343%. For its long-term investors, these are some hefty returns.

Buffett deems Apple as one of his ‘four giants’. And in the second quarter, Berkshire topped up its holdings with an additional 4 billion shares.

The tech giant also posted some strong results in its latest update to shareholders, where net sales jumped 2% compared to H1 2021.

Within the results, CEO Tim Cook talked of Apple’s ability to “enrich the lives” of customers.

The business may see a slowdown in demand in the upcoming months as the cost of living continues to rise. Higher costs for materials and supply chain issues may also prove headwinds for the firm.

However, like Buffett, I deem Apple a strong addition to my portfolio. Its core business features are more than attractive. And if it carries on with its impressive growth, I think I could see some healthy long-term returns.

Since the Oracle of Omaha became the CEO of Berkshire Hathaway, he’s managed to generate average annual returns of 20% – twice that of the S&P 500. Pretty impressive.

Apple (NASDAQ: AAPL) makes up nearly half of Berkshire’s stock portfolio, showing Buffett is clearly bullish on the stock, as he deems it one of his ‘four giants’. Here’s why I agree.

Understandable investment

What I most like about Apple is that the value of the company is easy to grasp. As Buffett said, “the important thing is to know what you know and what you don’t know”. In essence, investments should be understandable. Billions of people use Apple products worldwide, so it’s clear to see the use that the company has.

This is shown through the firm’s better-than-expected latest results, where despite the cost-of-living crisis, net sales rose nearly 2% year over year. This included a 3% jump in iPhone sales, while Apple’s services division also saw a rise.

Speaking on its performance, CEO Tim Cook highlighted how it showed “Apple’s constant efforts to innovate, to advance new possibilities, and to enrich the lives of our customers”.

Despite this positive outlook, Cook did also mention the impact of inflation. And this could be a threat to the business in the near term. With it being felt through wages and component costs, this could drag the Apple share price down.

However, with iPhone 13 sales remaining strong despite the near release of a new model, I think this highlights the company’s resilience.

Buyback scheme

Apple has also been boosted in recent times by its share buyback scheme. The aim of this is to return value to shareholders.

Strategies like this have helped towards a meteoric 320% rise in its share price over the last five years, as last year alone the business spent $85bn on buying back shares.

This trend continued in its latest quarter as Apple returned over $28bn to shareholders.

Apple concerns

Despite this, I do have a few concerns surrounding Apple.

With a price-to-earnings ratio of 27, the stock doesn’t seem cheap. Granted, it’s been higher in the past. But with it significantly above the ‘value’ benchmark of 10, this is a worry.

With inflation also set to rise further, Apple’s resilience may break should we see consumers tighten their belts. It has plans to release the iPhone 14 later this year. But with the cost-of-living crisis looking like it’s set to worsen, the business may see a fall in demand for products.

However, there’s talk of Apple freezing the price of the iPhone 14, which goes against the usual trend of incremental price increases for new models. Given the times, this makes sense. And hopefully, this will help offset a slow in demand.

Why I’d buy

So, despite my concerns, I’d still buy Apple shares. Its results show that its capable of navigating tough periods. And with its buyback scheme, along with being an understandable investment, I think it’s a strong addition to my portfolio.

Now, it’s still uncertain when the stock market will fully recover. High inflation is the biggest challenge facing the world’s central banks. And their policy to tackle rising prices could cause a deeper recession.

But I’m looking further ahead. As a long-term investor, I want to know which shares to buy and hold that could thrive over the coming years.

Top shares to buy

At the top of my list is the most valuable company in the world, Apple (NASDAQ:AAPL). This is a high-quality business.

Even renowned investor Warren Buffett likes these shares. That’s despite having avoided technology stocks for many years.

So much so, more than 40% of Buffett’s Berkshire Hathaway (NYSE:BRK-B) portfolio is now composed of Apple shares. That is quite some conviction.

And I can see why. It has one of the strongest and most recognisable brands in the world. Apple also runs a closed ecosystem, making it very difficult to switch to competitors. That results in customers that remain for years, providing Apple with significant repeat business.

Buffett once said, “in business, I look for economic castles protected by unbreachable moats”. The moat he refers to is a solid competitive advantage. And for Apple, that’s brand loyalty, in my opinion.

A word of caution, however. Rising energy and food costs might lead to tighter pockets for many consumers. And some might think twice before upgrading their phones and laptops, or some customers might delay their purchases.

Overall though, this is a cash-heavy and resilient business. I already own some of these shares but I’d be more than happy to buy some again before the market rebounds.

From apple to bread

When looking for the best shares to buy, I like seeing businesses that have a strong customer proposition. Whereas Apple targets the premium end of smartphones, my next share targets the value end of baked goods.

I speak of England-based bakery chain Greggs (LSE:GRG). Like Apple, it has built a strong brand throughout the country, even gaining a cult-like following from parts.

Recent sales have been encouraging. For the six months to 2 July, pretax profit was higher than the year before. That’s despite higher operating costs.

Rising energy, staffing, and commodity prices has put pressure on many businesses. And Greggs is no exception.

That said, it was able to raise prices accordingly without seeing a drop-off in demand. That’s exactly the type of pricing power that I like to see.

As incomes get squeezed later in the year, many businesses could see a fall in demand. But Greggs offers low-value products. The average spend in a store is just £4, and I feel that customers are unlikely to alter their spending behaviour if Greggs needs to add a few more pence to their sausage rolls.

Greggs has a strong balance sheet and plenty of cash flow. It’s also planning to open around 150 new shops this year. Given its resilience, I reckon these are exactly the type of shares I’d buy for my Stocks and Shares ISA.

If I had bought £1,000 of Apple stock a year ago, today I’d have more money than I started with. The stock is up 8%. So as the company is listed in the US, if I had bought $1,000 of shares, today I’d have $1,080.

But my portfolio is in GBP and the pound has sunk against the dollar over the past 12 months.

A year ago, £720 would have got me $1,000. But today, $1,080 would get me £883. So my investment would have yielded a 22% increase. A great return considering what’s been going with tech stocks!

But, would Apple still be a good investment for my portfolio? Let’s take a closer look.

Earnings report

Apple released its Q3 earnings report on Thursday and beat analysts’ expectations. The firm registered record Q3 revenue of $83bn despite concerns about flagging consumer confidence and the impact of inflation. Analysts expected $82.7bn in revenue.

Earnings per share came in at $1.20 versus $1.16 expected.

iPhone and iPad revenue both beat expectations by some distance, driving profitability up during the quarter. Apple had previously said it was keeping iPhone production flat throughout 2022 amid an increasingly challenging environment. The news will also be positive for chip makers such as Taiwan Semiconductor Manufacturing.

However, despite the record revenue, Apple reported net income fell 10.5% year-over-year as costs increase and lockdowns in China hit sales and production.

Would I buy Apple stock?

So, firstly I think there’s one major issue with me investing in US stocks right now. And that’s the weakness of the pound. I know the forecast for the US economy is generally more positive than European nations, however I wouldn’t expect the pound to depreciate much further against the dollar. As such, I am wary that any gains in the share price would be wiped out by fluctuations in the exchange rate.

But more specifically to Apple, I’m actually fairly bullish on the firm. The company has an impressive hold over the market for top-end electronic devices and there is real excitement when Apple releases its latest products. Apple is widely expected to launch its iPhone 14 line along with its Apple Watch Series 8 later this year.

Naturally, the interplay between Apple’s products and services increases a consumer’s reliance on the company’s offerings. Trying to ween oneself off Apple products is difficult! I’ve often thought about it but I’d have to swap my iPhone, iPad and Mac all at the same time to keep that interconnectivity going.

It’s also worth recognising that Apple gets around a quarter of its revenue from services. Services refers to things like Apple Music, Apple Fitness+, Apple News+ etc… All of which reduces Apple’s reliance on hard tech. Morgan Stanley suggests that the services segment could help push the company’s valuation back over $3trn.

I actually wouldn’t buy Apple for my portfolio right now, and it’s not a reflection on the company’s strength. I actually see the share price going up over the next year. But I think it would be wiped out by exchange rate fluctuations.