The legendary investor Warren Buffett is famous for his annual letters to the shareholders of his company Berkshire Hathaway. These letters are typically expansive, and packed with investing tips and wisdom, but written in an accessible and often humourous and witty manner.

The latest Berkshire letter is hot off the press, having only been released a few weeks ago.

One of the most pertinent things Buffett wrote this year was to do with finding winners for one's share portfolio.

Some Warren Buffett wisdom to get to $1 million…

Here's what the great man himself had to say:

In 58 years of Berkshire management, most of my capital-allocation decisions have been no better than so-so. In some cases, also, bad moves by me have been rescued by very large doses of luck…

Our satisfactory results have been the product of about a dozen truly good decisions – that would be about one every five years – and a sometimes-forgotten advantage that favors long-term investors such as Berkshire…

The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well.

So "it takes just a few winners to work wonders". That's the philosophy I like to take into my own investing practice. As such, I'm always on the hunt for the ASX's best shares – ones that could drive my own share portfolio to $1 million one day.

Of course, this is easier said than done. And if Buffett himself isn't immune from making mistakes, then we should all prepare for more than a few setbacks along the way.

You'll normally find that the companies that dominate their respective industries and markets have some kind of secret sauce that keeps them at the top of the pole. Buffett likes to call this competitive advantage a company's 'moat' – named for the protection it provides against competitors.

It could be a reputable or famous brand (think Coca-Cola, Apple or even Commonwealth Bank of Australia (ASX: CBA)), a cost advantage (perhaps Woolworths Group Ltd (ASX: WOW), or having an asset or product that customers have no choice but to use (a Transurban Group (ASX: TCL) toll road).

Buy the best companies – at the right price

But finding these quality companies is just the start. To truly find a winner, you need to buy it at the right price. Let's take Woolworths as an example.

You can't deny this company's quality as the leading supermarket operator in Australia.

If an investor bought Woolworths shares back in May of 2014, they would have paid around $31 a share. That would lead them to a rather uninspiring total return of just over 20% by this point of 2023 (albeit boosted by the dividends Woolworths has paid along the way).

But what if that investor instead waited until July 2016 to buy in? That's when Woolworths was in the midst of its Masters debacle, and the shares got down to around $17.50. If our investor had bought at this far more attractive share price, they would instead be sitting on a capital gain of well over 100% today:

WOW indeed.

So Buffett teaches us that getting to $1 million requires just a handful of quality shares, but bought at the right price.

I'm banking on shares that I think fit this mould to get my own wealth to over $1 million. Those include Washington H. Soul Pattinson and Co Ltd (ASX: SOL), the VanEck Morningstar Wide Moat ETF (ASX: MOAT), Adairs Ltd (ASX: ADH) and Wesfarmers Ltd (ASX: WES).

Only time will tell if any of these prove to be the flowers my wealth garden needs (and hopefully not weeds).

The post I'd aim for $1 million, thanks to just a few ASX shares appeared first on The Motley Fool Australia.

There are many exchange-traded funds (ETFs) to choose from on the ASX, both active and passive.

Although the funds themselves are traded on the ASX, many of these contain overseas stocks.

The situation then gets complicated because the buying and selling price for these shares becomes dependent on the exchange rate of the Australian dollar.

Some ETF providers have provided a solution around this by providing currency-hedged funds.

Hedged funds will use financial instruments to smooth out the effects of any exchange rate fluctuations over time.

So when should you buy into a currency-hedged ETF, and when should you go for the unhedged ETF?

Shaw and Partners portfolio manager James Gerrish gave his thoughts recently on this dilemma:

The Australian dollar is a risk currency

Gerrish took the example of Betashares Nasdaq 100 ETF (ASX: NDQ) and BetaShares NASDAQ 100 ETF-Currency Hedged (ASX: HNDQ).

"These are ASX listed ETFs yet they are holding US assets such as Microsoft Corp (NASDAQ: MSFT), Apple Inc (NASDAQ: AAPL) and Amazon.com Inc (NASDAQ: AMZN)," he said on a Market Matters Q&A.

"NDQ is not hedged whereas the HNDQ ETF is currency hedged."

He explained that if the NASDAQ-100 (NASDAQ: NDX) rises by 10%, HNDQ is designed to do the same.

"NDQ is also exposed to the vagaries of the Australian dollar," said Gerrish.

"If the Aussie falls by 10% your gains on the underlying stock could be wiped away and, of course, vice versa."

The conventional wisdom is to buy the hedged ETF when the Australian dollar is low, and buy the unhedged version when the Aussie is high against other currencies.

However, Gerrish's insight is that the difference is not as significant as one might think.

"Unhedged exposures generally have a smoothing effect on returns for Australian investors given the Australian dollar is a risk currency," he said.

"When markets fall, the Australian dollar generally falls as well, cushioning the decline."

Over the past year, NDQ has fallen 11.5% while the currency-hedged HNDQ has lost 17%.

The post Hedged or unhedged: Which ASX ETF do I buy? appeared first on The Motley Fool Australia.

Regular readers of The Motley Fool would not need reminding that technology shares took a brutal beating in 2022.

But with the S&P/ASX All Technology Index (ASX: XTX) up 15.5% already this year, one expert has declared the sector is back with a vengeance.

DeVere Group chief executive Nigel Green said that financial updates from US tech giants this week would commence "The Great Rotation back into growth stocks".

"As market conditions shifted in 2022, investors dumped growth stocks, like tech, in favour of value stocks which were deemed more suitable to the challenging environment," he said. 

"But what is happening now, we believe, is the beginning of a rebound."

Mixed results for tech giants

Green did admit the short-term results for big tech were mixed.

"Facebook's parent company Meta Platforms Inc (NASDAQ: META) has exceeded estimates for revenue in its fourth-quarter earnings report, with the stock soaring in extended trading on the results," he said.

"While Amazon.com Inc (NASDAQ: AMZN)'s earnings are expected at $0.15 per share, which would be an 89% decrease from the same quarter in 2021."

Green predicted that Apple Inc (NASDAQ: AAPL) would see declining revenue for the first time since early 2019.

"Alphabet Inc (NASDAQ: GOOGL), the parent company of Google, is expected to report a third consecutive quarter of declining earnings."

But this won't stop long-term investors piling back into the tech sector, according to Green.

He cited two reasons why The Great Rotation is on in earnest.

"First, valuations of tech and other growth stocks are currently low having been hit by the previous rotation into value stocks," said Green.

"Investors are now eyeing these super attractive entry points to top-up their portfolios as the trend is reversing."

Secondly, investors are looking forward to how macroeconomic factors might change.

"Inflation has seemingly peaked and interest rates are set to stabilise, which takes away a major obstacle for tech stocks."

Bet on still-cheap tech for strong returns 

Green thus declared that "tech stocks are back" and urged punters to take advantage.

"Rotation into the right growth stocks will provide strong returns."

He warned, though, that this is not a time for investors to "buy everything".

"There will be big winners and losers. They must concentrate on high quality, profitable companies which can consistently maintain or steadily grow margin[s]."

And despite lukewarm results, the tech giants shouldn't be written off.

"[They] still have piles of cash, in some cases hundreds of billions of dollars, and remain enormously profitable," said Green.

"In addition, these companies maintain considerable user bases, world-class research and development, plus some of the smartest talent on the planet."

The post 'The Great Rotation' has begun: Expert declares tech shares will provide 'strong returns' in 2023 appeared first on The Motley Fool Australia.

The US stock market could be in for a riveting week amid multiple household names reporting.

Analysts at ANZ Group Holdings Ltd (ASX: ANZ) are tipping the US Fed to raise rates at a meeting later this week.

The S&P 500 Index (SP: .INX) slid 1.3% overnight, the Dow Jones Industrial Average (DJX: .DJI)slipped 0.77% and the Nasdaq Composite Index (NASDAQ: .IXIC) slipped 1.96% on Monday, US time.

What's ahead?

ANZ highlighted it is a "big week for both central banks and US equities" in a research report released this morning.

Among the US stocks due to report earnings are Apple Inc (NASDAQ: AAPL), Meta Platforms Inc (NASDAQ: META), Caterpillar Inc (NYSE: CAT), McDonald's Corp (NYSE: MCD), General Motors Company (NYSE: GM), United Parcel Service Inc (NYSE: UPS) and Alphabet Inc Class A (NASDAQ: GOOGL).

ANZ senior economist Felicity Emmett said these earnings announcements will provide a "micro overview of the macro economy". She added:

Investors bought into the 'soft landing' view in early 2023, despite the prospect of what could still be a bumpy ride for activity as the lagged effects of last year's interest rates front-loading and still-high inflation bite. 

Meanwhile, the United States Federal Open Market Committee (FOMC) is due to announce an interest rate decision on Thursday morning, Sydney time. ANZ is forecasting a 0.25% rate rise.

Commenting on this outlook, ANZ's Emmett said:

We expect a 25bp rate rise and anticipate that the Fed will caution against an early pause in the tightening cycle and certainly give the notion of cuts no rein.

Risk appetite could be vulnerable to a correction.

US stock market snapshot

Meta shares fell 3% on Monday and have shed 53% in the last year.

Apple Inc (NASDAQ: AAPL) shares lost 2% on Monday and have slid 18% in the last year.

Alphabet shares slid 2.74% on Monday and have tumbled 28% in the past year.

McDonalds shares dropped 0.58% on Monday but have climbed 4.41% in the last 52 weeks.

General Motors shares shed 4.37% on Monday and have slumped 31% in the last year.

Caterpillar shares fell 1.11% on Monday but have soared 29.74% in the past year.

The United Parcel Service share price lost 2.81% on Monday and has slid 12.48% in the last year.

Meanwhile, the S&P 500 Index has shed 11% in the last year, while the Dow Jones has lost 4% in a year and the Nasdaq Composite has shed nearly 20% in the past 12 months.

The post What to watch on the US stock market this week: ANZ appeared first on The Motley Fool Australia.

I've got nothing against lithium. It looks likely that this future-facing metal is going to play a big part in the world's transition to providing cleaner energy. But I'm willing to bet the legendary investor Warren Buffett isn't interested in investing in lithium.

Buffett is famously generous with giving out investing wisdom. As such, we know what he typically looks for in an investment. Buffett's methodologies have helped him return upwards of 20% per annum in the investment portfolio of Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) over his 60-year investing career.

Buffett's typical investing checklist includes finding companies with intrinsic competitive advantages (or 'moats'), a management team with integrity, an easy-to-understand business model, and (of course), buying it at the right price:

The reason why Buffett hasn't ever bought a lithium stock? Most fail that first hurdle before they even get off the ground.

Buffett wouldn't buy lithium

A lithium miner is still a miner, even if the company possesses a key ingredient for a cleaner future. This means that a lithium producer has to sell its products at a common market price. Most of Buffett's long-term holdings aren't restricted by this kind of barrier.

Take Berkshire's largest position: Apple Inc (NASDAQ: AAPL). Apple has some of the best margins in the world because of its globally dominant brand. The company can basically charge whatever it likes for its products, safe in the knowledge that its customers will be happy to pay top dollar for the privilege of owning something with the famous Apple logo on it.

A lithium producer has no such luxury. It has almost no influence over what it can charge the buyers of its products. This doesn't matter so much when lithium prices are rising. But when the inevitable commodity cycle plays out and lithium prices go through a tough time, all producers will suffer, regardless of 'brand power'.

So I'm following the Buffett playbook in 2023 and limiting my search to companies that I can understand, have intrinsic competitive advantages, top management teams and compelling prices.

I'll be taking closer looks at the likes of TechologyOne Ltd (ASX: TNS), Transurban Group (ASX: TCL), Breville Group Ltd (ASX: BRG) and Premier Investments Limited (ASX: PMV).

But I'll be taking a pass on Core Lithium Ltd (ASX: CXO), Pilbara Minerals Ltd (ASX: PLS) and Liontown Resources Ltd (ASX: LTR). It's not that these companies are poor businesses. They just don't fit into the Buffett investing framework I like to try and stick to.

The post Forget lithium! I'm using the Warren Buffett method to help find winning ASX shares in 2023 appeared first on The Motley Fool Australia.

So what can we learn from Buffett's 2022 moves here on the ASX?

Well, let's check out how Buffett has been managing his cash over the year that (almost) was.

So according to a comprehensive analysis of Buffett's moves from our Fool colleagues over in the US, Buffett made several big moves in Berkshire's portfolio this year.

Buffett's Berkshire bets big on oil

Amongst his bigger bets was a massive increase in Berkshire's exposure to oil. Berkshire already owned significant chunks of oil giants Chevron and Occidental Petroleum. But Buffett more than quadrupled Berkshire's stake in Chevron in 2022, growing the company into Berkshire's fourth-largest position. He also boosted Occidental's position significantly as well.

So Buffett clearly thinks the oil space is one well worth investing in for 2023 and beyond. This might not bode well for motorists in the new year.

Another sector Buffett has apparently been focusing on in 2022 is tech. Buffett has famously been slow on the uptake when it comes to tech shares. He barely owned any tech stocks until 2016. But that was when Berkshire started buying Apple.

A combination of aggressive buying and a ballooning Apple stock price has resulted in Apple now being the largest holding in Berkshire Hathaway's portfolio. And by a mile too.

Berkshire's tech portfolio is expanding

Buffett hasn't bought too much more of Apple in 2022. but he has been loading up on two other tech stocks: HP and Taiwan Semiconductor Manufacturing Co (TSMC) HP is a dominant manufacturer of printers and PCs. he reportedly purchased a chunk of HP when it was sitting at a price-to-earnings (P/E) ratio of just 6, so this looks like a classic value play.

His purchase of TSMC is more interesting. TSMC is by far the most dominant manufacturer of advanced semiconductor chips in the world, with more than half the world's market share. It's Buffett's first foray into the world of semiconductors, but one he has built out aggressively.

His purchase of more than US$4 billion worth of TSMC stock has made this company into Berkshire's tenth-largest position today.

So what can we ASX 200 investors learn from Buffett's 2022 moves?

Well, it's pretty obvious that Buffett is still betting big on oil and tech – specifically semiconductors. Unfortunately, the ASX doesn't have much in the way of semiconductor stocks. But there are plenty of oil and energy shares, including Woodside Energy Group Ltd (ASX: WDS) and Santos Ltd (ASX: STO) to choose from.

The post What can ASX 200 investors learn from Warren Buffett's big moves in 2022? appeared first on The Motley Fool Australia.

Any ASX dividend investor worth their salt knows all about the ex-dividend date – the date that new investors are cut off from receiving an upcoming dividend payment.

Ex-dividend dates are usually notable events. For one, they are the dividing line between who gets cash and who doesn't. But because new investors aren't eligible for a dividend after the ex-dividend date passes, the value of said dividend leaves the company's share price on the ex-dividend date. This usually results in a large share price fall.

Well, it's not just ASX shares that can trade ex-dividend. Exchange-traded funds (ETFs) can pay dividends too. And as such, ETFs have ex-dividend dates as well.

Of course, dividends from an ETF are technically called distributions. This reflects the fact that an ETF is a trust, and not a company. As such, an ETF's ex-dividend date is actually called its 'ex-distribution' date.

As we speak, two ASX ETFs are quickly approaching their next ex-distribution date.

Let's discuss them.

2 ASX ETFs going ex-dividend next week

The first is the Vanguard FTSE All-World ex-US ETF (ASX: VEU). This ETF is a rather massive one in scope from provider Vanguard. It invests in a basket of roughly 3,500 shares hailing from countries all around the world, with the exception of the United States.

You'll find ASX shares here, as well as those from Canada, Taiwan, Japan, China, Europe, India, and the United Kingdom.

This ETF pays out dividend distributions every quarter. Its latest distribution payment is due on 20 January 2023. However, only investors who own this ETF's units on or before the ex-distribution date of 20 December (next Tuesday) will be eligible for payment.

Vanguard hasn't yet disclosed the exact amount investors can expect to see for this distribution. The final amount in Australian dollar terms will only be revealed on 16 January.

Next up we have the Vanguard US Total Market Shares Index ETF (ASX: VTS). Another ETF from Vanguard, this fund covers not just the popular S&P 500 Index (SP: .INX), but a total of 4,030 shares on the US markets. This gives investors massive diversification across large and small-cap US shares.

Although the larger names like Apple and Amazon are still dominant in this ETF, name any US public company you can think of, and it's probably in this fund too.

The Vanguard US Total Market Shares Index ETF also pays out quarterly distributions. Again, Vanguard hasn't yet disclosed exactly how much investors can expect to be paid out yet. However, we do know that the next distribution date for this ETF will be on 25 January 2023.

Investors have until the ex-distribution date on 23 December to buy units of this ETF if they wish to receive this payment. The final amount in Aussie dollars will then be disclosed on 19 January next year.

The post 2 ASX ETFs trading ex-dividend next week appeared first on The Motley Fool Australia.

Something strange is happening with the iShares S&P 500 ETF (ASX: IVV) this week. Back on Monday, units of this exchange-traded fund (ETF) were trading for almost $600 each. But today, this ETF is going for just $39.07 per unit. It also seems to have a new ticker code.

So has this popular ASX ETF really lost almost 95% of its value this week?

The iShares S&P 500 ETF is one of the most widely-held ETFs on the ASX. It's actually the ASX's most popular internationally-based fund. This ETF tracks the S&P 500 Index (SP: .INX), which is the most widely tracked index in the world.

It represents the 500 largest companies on the US markets by market capitalisation. That includes everything from Apple, Microsoft, and Amazon to Exxon Mobil, Coca-Cola, and McDonald's.

So no, this ETF hasn't collapsed by 95% this week. If the US S&P 500 Index was down 95% in one week, we'd certainly all know about it.

Rather, this ETF has just undergone a stock split.

A stock split for the S&P 500 ETF?

A stock split occurs when a company or ETF decides to increase its share (or, in this case, unit) count. It issues new shares (or units) to existing investors, at the same time diluting the value of the existing shares out there.

This has the effect of lowering the share (or unit) price of the company or ETF, but makes up for this by giving away new shares (or units).

This can be done for a number of reasons. But most do so to boost liquidity and to make it easier for investors to buy and sell shares or units.

At the start of this week, one single unit of the iShares S&P 500 ETF would set an investor back almost $600. That makes it a rather unwieldy investment to have to deal with.

This ETF's provider must have thought so too, because back on 23 November, BlackRock announced that the iShares S&P 500 ETF would be undergoing a 15-to-1 stock split.

That means that for every one unit of this ETF, investors now own 15. Concurrently, the unit price of this ETF has just been reduced by a factor of 15.

So if an ASX investor used to own 10 iShares S&P 500 units, worth $5,860, today, they own 150 units, each worth $39.07. Same value, different path to getting there.

So no investor has been left better, or worse off, from this split. It's just a cosmetic change for all intents and purposes.

Is it IVV or IVVDB?

But what's with the new ticker code? Yes, the iShares S&P 500 ETF used to trade under the code 'IVV'. But today, the ETF has seemingly switched to 'IVVDB'. Well, this is a temporary situation.

As we covered last week, part of the stock split process involves the ETF trading under a 'deferred settlement' basis. So today, the 'IVVDB' units represent the deferred settlement units.

This will only be in place until 13 December. That's when the deferred settlement period will have concluded and the ETF reverts to its old 'IVV' code.

The IVVDB units will seamlessly be converted into IVV units when this happens. So if you're desperate to buy the newly-split ETF today, don't let the new code hold you back.

The post Is the iShares S&P 500 ETF (IVV) really down 95% today? appeared first on The Motley Fool Australia.

ASX shares are having a top day of gains so far this Thursday. At present, the S&P/ASX 200 Index (ASX: XJO) has risen by a healthy 0.85% all the way up to just under 7,350 points. But those gains look rather small in comparison to what's happening with the BetaShares NASDAQ 100 ETF (ASX: NDQ).

This index-tracking exchange-traded fund (ETF) is rocketing in value today. BetaShares NASDAQ 100 ETF units are currently enjoying a 2.78% surge in value, lifting the fund up to $27.38 per unit.

So what's behind these pleasing rises this Thursday?

Why is the BetaShares NASDAQ 100 ETF surging in value?

Well, the BetaShares NASDAQ ETF is an index fund that tracks the NASDAQ-100 (NASDAQ: NDX) over in the United States. The NASDAQ 100 is an index that tracks the 100 largest shares on the NASDAQ stock exchange, excluding certain financial companies.

The NASDAQ is well known for being the home of most of the top tech shares on the US markets. Apple Inc (NASDAQ: AAPL), Microsoft Corporation (NASDAQ: MSFT), Amazon.com Inc (NASDAQ: AMZN), Netflix Inc (NASDAQ: NFLX), Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL) and Tesla Inc (NASDAQ: TSLA) all call the NASDAQ home. As you can tell by their ticker codes.

So as goes the performance of the NASDAQ 100 Index, so goes the BetaShares NASDAQ 100 ETF.

And lo and behold, the NASDAQ 100 had a stellar night last night in US trading. The iIndex finished the session up a rather extraordinary 4.58% to back over 12,000 points.

That's a two-and-a-half-month high. These gains were spurred by the likes of Apple rising close to 5%, Alphabet soaring more than 6%, and Tesla rocketing an incredible 7.67%.

So the BetaShares NASDAQ ETF was always going to have a cracking day. Why isn't it rising by 4.58% like its index, though?

Well, the BetaShares NASDAQ ETF houses assets priced in US dollars. But it is quoted in Australian dollars. Thus, currency movements affect its value, alongside the value of its underlying shares.

And while the US markets rocketed overnight, so too did the Australian dollar. A higher Aussie dollar means that US shares become less valuable in Australian dollar terms. So hence the more muted gains we have seen with the ETF.

Nevertheless, there's no doubt investors are very happy with this ETF today.

The post Why is the BetaShares NASDAQ 100 ETF (NDQ) having such a stellar run today? appeared first on The Motley Fool Australia.

Every so often, a company comes along and has so much success that many investors end up retiring millionaires by simply going along for the ride. Apple (NASDAQ: AAPL) is one of those companies. The tech giant has seen success matched by very few in history, and it has been rightfully earned. After all, it has world-class products, top-tier brand loyalty, and a bank account that other companies can only dream of having.

Past results are great, but a company's future outlook should be driving investing decisions. And although it's the largest public company in the world with a market cap of over $2.4 trillion -- more than Amazon, Berkshire Hathaway, and Tesla combined -- there's still room for noticeable growth for Apple.

Here's why it's a must-own for 2023.

Apple is just getting started in the finance industry

Apple first began its journey into the financial services space in 2014 with the announcement of Apple Pay, which allowed people to pay from their iPhones. However, this move was seen as more about convenience than Apple making its way into the space. Then came 2019 and the announcement of the Apple Card -- a sign Apple was clearly taking a step in that direction.

With the Apple Card, Apple relied on Goldman Sachs to approve applications and fund the loans, which is why when they announced Apple Pay Later -- their move into the buy now, pay later space -- it was no longer a mystery whether Apple was serious about becoming a player in the financial services industry. Apple Pay Later is the first time Apple is underwriting and funding loans by itself.

Apple has an advantage that no other financial institution can duplicate: Its iPhone is in more than 100 million hands in the US. Between the iPhone's world-class technology and the convenience it can provide, the company's play into the financial services space is bound to test even the most formidable of financial technology (fintech) competitors.

The iPhone still reigns supreme

The iPhone is arguably the greatest consumer product ever made; it has quite literally changed the world. Apple reportedly spent over $150 million developing the original iPhone, and to say they've reaped the returns on their investments would be the understatement of the century. In its 2022 fiscal year, Apple brought in $394.3 billion in revenue -- roughly $28.5 billion more than it did in 2021. The iPhone accounted for more than half of that, bringing in $205.4 billion.

The fact that the iPhone managed to increase its sales in a year defined by inflation not seen in decades is very telling of its power. In fact, this year was the first time ever that more people in the US used an iPhone than an Android phone. That's a remarkable milestone when you consider the iPhone's market share growth and much higher price point.

As long as the iPhone is padding Apple's bottom line, there's no reason to believe it won't continue to be one of the biggest cash cows you'll see from any business in any industry.

Apple is ramping up its research and development

Apple has historically spent a smaller portion of its revenue on research and development (R&D) than its other Big Tech competitors like Alphabet and Amazon. In 2020, here's how much the three companies spent on R&D and the percentage that was of their net sales:

• Alphabet: $27.6 billion (15%)
• Amazon: $42.7 billion (11%)
• Apple: $18.8 billion (7%)

In 2021, Apple's R&D budget increased to $21.9 billion, and in 2022, it jumped up to $26.2 billion -- a company record. Although this still represents a relatively low percentage of Apple's revenue, it's a sign the company isn't getting complacent and is putting more emphasis on taking advantage of potential growth opportunities.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Is Apple a must-own US stock in 2023? appeared first on The Motley Fool Australia.

Apple's (NASDAQ: AAPL) incredible financial strength has allowed it to weather the current bear market better than many other tech stocks. Yet its shares are still down about 17% year to date. The tech titan, in turn, has lost a staggering $500 billion in market value.

Could this be an opportunity for investors to buy Apple's stock at a bargain price?

The bull case for Apple's stock 

A couple of years ago, Warren Buffett called Apple "probably the best business I know in the world." That's high praise from the legendary investor.

Incredibly, Apple has only grown stronger since then. The technology leader generated a staggering $99.8 billion in net income and $111.4 billion in free cash flow over the trailing 12 months. That's up from $57.4 billion and $73.4 billion, respectively, in 2020.

This breathtaking financial performance is derived from a relatively simple business model. Apple makes and sells its popular iPhones, Macs, iPads, and wearable devices. It then sells an array of services to its massive base of users.

Together, these devices and services form a vast ecosystem that tends to be quite sticky. Once a person buys an Apple product, they tend to remain a loyal customer. This is why investors are increasingly viewing Apple as a utility-like business -- one with dependable, recurring revenue and reliable cash flow. Like the best utility stocks, Apple is rewarding its shareholders with a steadily rising dividend stream and bountiful stock buybacks, both of which help to bolster its share price.

AAPL data by YCharts

Moreover, Apple's robust cash flow generation and fortress-like balance sheet -- which contained over $169 billion in cash and investments as of Sept. 24 -- allow it not just to survive but thrive during difficult economic environments. Apple also tends to outperform its less financially sound rivals during these times. Many investors have thus come to view Apple's stock as a safe haven during the current market downturn, which is one of the reasons why it has performed better than many other tech stocks this year. The defensive nature of its business should continue to serve Apple well in the coming years.

Apple's stock is reasonably priced

Apple's shares can currently be had for less than 22 times analysts' earnings estimates for the year ahead. That's slightly less expensive than the forward price-to-earnings (P/E) ratio of the Nasdaq-100 index, which stands at about 22.5. Apple is arguably the best business in that index. But rather than paying a premium for quality, as is typically required, you can buy Apple's stock at a slight discount today.

The tech giant may have a lower projected growth rate than some of the Nasdaq-100 index's more rapidly expanding constituents, but Apple is still expected to increase its earnings per share by roughly 9% annually over the next half-decade. Its P/E ratio thus seems quite reasonable, particularly when considering its powerful competitive advantages and unrivaled financial fortitude.

Risks for investors to consider

Individuals and businesses spent heavily on laptops and other mobile devices during the early stages of the pandemic, as the work-from-home trend gained steam. But those purchases pulled forward some sales that would otherwise be taking place today, and the personal computer (PC) industry is now experiencing a sharp pullback in demand.

PC shipments fell 15% year over year in the third quarter, according to research firm IDC. The phone industry is experiencing a similar dynamic, with smartphone sales down 9.7% in the same period. These trends could dampen Apple's results if they persist.

That said, Apple was able to generate higher Mac and iPhone sales in the third quarter despite the downturn, due in part to its unmatched customer loyalty. Mac sales jumped 25% to $11.5 billion, while its iPhone revenue rose 10% to a whopping $42.6 billion.

Yet even if demand for its devices remains strong, Apple could find it difficult to produce enough of its products in the coming quarters. China continues to respond to new COVID-19 outbreaks by instituting strict lockdowns. With some of its most important manufacturing sites in China, Apple may face supply shortages for key products like the iPhone. These challenges should, however, abate when the pandemic eventually subsides.

So, is Apple's stock a buy?

With its popular products continuing to sell well, and its utility-like cash flows helping to bolster its already awe-inspiring financial strength, Apple could be the bastion you're seeking in the current economic storm. With near-term risks likely already reflected in its discounted share price, Apple's stock is a solid buy today for long-term investors. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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As 2022 starts to close, it's only natural for investors to start peeking toward 2023. So far in 2022, the indexes have fared pretty miserably, with the Nasdaq-100 down 29% and the S&P 500 down 17%. Which one will have a better 2023?

Let's look at these indexes and their makeups and find out which is more likely to have a better 2023 ahead.

The indexes are highly concentrated on the top

At the top, the indexes have a lot of overlap.

Data source: Slickcharts. Data as of Nov. 19. *Note: Both Alphabet class shares combined.

Data source: Slickcharts. Data as of Nov. 19. *Note: Both Alphabet class shares combined.

As you can see, Apple, Microsoft, Amazon, and Alphabet make up a considerable chunk of these indexes. In the S&P 500, they account for 19.83%. It's basically double for the Nasdaq-100, with that group making up 39.16% of the index. It's pretty straightforward: How these companies do will significantly steer how the overall index does.

While these three are tech-focused, they compete in different markets. Both Apple and Amazon are a good measure of the pulse of the consumer, as their sales are highly affected by consumer sentiment. If inflation cools, and consumers don't need to worry about rising grocery prices or housing costs, they may treat themselves to the latest device.

Alphabet and Microsoft are business-focused, but for different reasons. Alphabet's primary revenue stream is advertising, and many clients have pulled back their spending levels in 2022 due to the uncertain business environment. If the outlook improves, expect this revenue to return. Microsoft's cloud business and Office product suite indicate how willing businesses are to spend on their infrastructure, but Microsoft's consumer product division also indicates how individuals are doing. 

If the consumer gets stronger and business outlook improves, these four will boom. If that's the case, then the Nasdaq-100 will likely have a better year because it is concentrated in companies that will benefit the most. But if 2023 brings an economic recession, the S&P 500's diversity will help it to outperform the Nasdaq-100.

The companies outside the top five are very different

For the S&P 500, when you move out of the top five, the companies become much more diverse.

Data source: Slickcharts. Data as of Nov. 19.

Now, there are industrials, healthcare, and energy sectors represented, giving the index some much-needed balance. Looking at the top 20 reveals even more diversity, with financials, energy, and healthcare rounding the index out.

This is far from the case for the Nasdaq-100.

Data source: Slickcharts. Data as of November 19. Note: Both Alphabet class shares combined.

Besides Pepsi and Costco, these companies are more in the tech sector. But, unlike the S&P 500, it doesn't get much better outside the top 10, with most of the top 20 consisting of chipmakers, communication companies, and software businesses. Now, this probably isn't a surprise because the media often refers to this index as the "tech-heavy Nasdaq."

Still, tech businesses don't do well if the economy is struggling.

Does that mean you should write the Nasdaq-100 off? Absolutely not. Tech stocks tend to do very well in the recovery phases of a recession. Plus, the stock market is forward-looking, and stocks usually tend to do better during a recession than leading up to one.

That last tidbit of information should keep investors in the market, especially now with a recession, or at least an economic slowdown, imminent. However, if you're trying to decide which index to buy, you need to utilize the 2023 outlook. If you think 2023 will be a repeat of 2022, then the S&P 500 is the better choice. On the other hand, if you believe the economy will begin to recover and the Federal Reserve eases its interest rate hikes, then the Nasdaq-100 is the place to be.

One last point: There's nothing wrong with owning both indexes if you don't know what 2023 will bring. Personally, I think this is an intelligent strategy, as it gives investors the upside of recovery and the safety of a balanced investment.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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There are few, if any, people whose names are associated with success in the stock market quite like Warren Buffett, and for good reason. With a net worth of more than $100 billion, Buffett has rightfully earned his spot among investing royalty. And one of the best things about his success is that it didn't take some extravagant strategy to do it.

As we endure a bear market that has shrunk the value of many investors' portfolios, here are some gems from Buffett that can help you better handle it and, indeed, use it as an opportunity.

There's value to be found

Warren Buffett is the poster child for value investing, which is a strategy by which investors look to find stocks trading at prices lower than their intrinsic (true) value. Value investors aim to buy undervalued stocks and profit from the increase in their intrinsic value eventually. For example, if a stock is trading at $100, but an investor believes the intrinsic value is $120, they'd invest, hoping to, at minimum, profit from the 20% increase once the market realizes its true value.

During bear markets, investors can find many great companies trading at a 'discount' or whose stock price may have overcorrected. Let's take Walmart, for example. From early April to mid-June 2022, Walmart's stock price dropped by well over 20% to around $120 per share, which many investors would agree was below its intrinsic value. Investors who took advantage of that dip have made more than 25% returns since then.

Generally, when a stock's price drops significantly, you must ask yourself why it's happening. But, during a bear market, when prices are dropping across the board, many of these declines are just a byproduct of the greater economy and not an indication of something fundamentally changing with the business.

Don't follow the crowd

There are many great investing quotes credited to Buffett, but none may be as relevant to today's environment as: "Be fearful when others are greedy, and greedy when others are fearful." Stock prices decline because investors begin selling more shares than people are buying, and demand drops. This is usually a sign that investors are fearful. Instead of following suit, it could be time to get greedy and turn it up a notch if you have the financial means.

History has shown us that bear markets are inevitable, and often necessary. The sooner you learn that the better because it helps you tune out the short-term noise and focus on the long term. It's easy to invest consistently when prices are rising, but not so much when prices are seemingly dropping before your eyes. Slowing or stopping investing can set back your financial progress.

Since going public in December 1980, Apple's stock price has increased well over 100,000% yet during that span, it's had negative returns in one-third of those years (including 2022 so far). Down years happen to even the best of companies; it's virtually inevitable. However, if you're focused on the long term, it shouldn't matter too much if your portfolio fluctuates weekly, monthly, or yearly as long as the results are there in the long run.

Utilize dollar-cost averaging

Buffett has long been a proponent of dollar-cost averaging, stating, "If you like spending six to eight hours per week working on investments, do it. If you don't, then dollar-cost average into index funds." To dollar-cost average, you pick your stocks, determine how much you can invest, and then invest on a set schedule no matter what. The frequency isn't as important as sticking to your preset schedule.

Dollar-cost averaging is good because it keeps you consistent as well as prevents you from trying to time the market -- which investors tend to do during bear markets more so than bull markets. Think about it: If prices are dropping, why buy today when you can get it cheaper later on, right? In theory, yes. But the problem is that's trying to time the market, which is essentially impossible to do consistently over the long run.

Dollar-cost averaging makes it easier to focus on the end goal without getting distracted.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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After taking over Berkshire in the mid-1960s, Buffett transformed the textiles company into a diverse powerhouse, owning many businesses outright and with significant investments in many other public companies.

Buffett's love of his investments is also well known. He even likes to remind shareholders of his commitment to the Coca-Cola Co (NYSE: KO) by typically sporting a can or a bottle at Berkshire's annual general meeting every year.

Berkshire Hathaway's massive portfolio

Berkshire owns stakes in more than 50 different publically-traded shares. But it might surprise investors to learn that almost 74% of Berkshire Hathaway's public investing portfolio is concentrated in just five companies. That's according to the company's latest 10Q filing, which is accurate as of 30 September.

Some famous names appear in Berkshire's list. There's Amazon.com Inc (NASDAQ: AMZN), Johnson & Johnson (NYSE: JNJ) and Visa Inc (NYSE: V). Buffett also owns chunks of Activision Blizzard Inc (NASDAQ: ATVI), Chinese electric vehicle manufacturer BYD Co Ltd and the relatively new-to-the-markets Snowflake Inc (NYSE: SNOW).

But none of these companies even come close to Buffett's top five holdings.

They are (from largest):

1. Apple Inc (NASDAQ: AAPL)
2. Bank of America Corp (NYSE: BAC)
3. Chevron Corporation (NYSE: CVX)
4. Coca-Cola Co
5. American Express Inc (NYSE: AXP)

So what can we learn from this?

What can we learn from Warren Buffett?

Well, a few things to point out. Some of these holdings, namely Coca-Cola and AmEx, are old Buffett favourites. Buffett first bought Coca-Cola shares back in the 1980s. His investment in American Express goes back even further to the 1960s.

But others are far newer. Apple is by far Berkshire's largest investment. The company has more than US$128 billion worth of Apple shares, which carves out a whopping 39.7% of Buffett's entire public portfolio. Yet Buffett only began buying Apple shares back in 2016. His Chevron stake is even newer, with Berkshire picking up its first shares in the midst of COVID-ravaged 2020.

So Buffett is clearly an investor that holds onto his favourite shares through thick and thin. American Express is a company that has had many, many ups and downs since Buffett first bought in back in the '60s. Yet Buffett has always stayed the course. Ditto with Coca-Cola.

But he is also an investor who knows how to jump on a trend. Buffett clearly saw the post-COVID collapse in global oil prices as an incredible opportunity.

It only took him two years to build Chevron into Berkshire's third-largest position – one worth US$31.2 billion today. And Apple has gone from absent to Berkshire's largest holding in just a few years as well.

So Warren Buffett is clearly an investor who likes to hold his favourite shares forever. But he is also one that isn't afraid to jump on a trend or a new idea and quickly build it into a sizeable position.

Perhaps above all, Buffett's Berkshire portfolio shows that he is just fine with having 40% of his portfolio in his favourite company: Apple. There are more than a few lessons we mere mortals can take away today.

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In 2020, billionaire investor Warren Buffett said Apple (NASDAQ: AAPL) is "probably the best business I know in the world." Following this sentiment, Apple is the largest stock holding that Buffett's company, Berkshire Hathaway, has in its portfolio.

That's high praise from a well known and highly successful investor, but the tech giant's stock has been declining this year. While that might worry some investors, now could actually be an opportune time to add it to your portfolio. After all, the business's fundamentals are solid and impressive despite the adversity in the economy right now. Here are four charts that help illustrate why this is a fantastic stock for investors to buy and hold.

1. Revenue has continued to grow amid inflation

One thing that never ceases to amaze me over the years is that despite its products not being cheap or even changing all that much, consumers still are continually eager to buy Apple's iPhones and other products. The company's top line has generated impressive growth, even now, with inflation testing consumers' budgets.

AAPL Revenue (Quarterly YoY Growth) data by YCharts

This resilience in the business demonstrates the brand loyalty the company enjoys and why it could continue to do well next year, even if inflation doesn't go away. If not for the impact of foreign exchange, the company's growth rate last quarter (for the period ending Sept. 24) would have been in the double digits.

Some analysts are worried that Apple's sales will decline next year, especially with production issues in China impacting iPhone shipments. And while that could happen, based on Apple's track record, I wouldn't expect to see a huge drop in revenue. It's still likely to do better than other tech companies.

2. Free cash flow has been rising in recent years

Investors should always focus on free cash flow. That can tell investors how safe a dividend is and how likely it is that a company can afford to buy back shares (which has a bullish impact on the stock) or pursue growth opportunities. In Apple's case, free cash flow has been stellar.   

AAPL Free Cash Flow (Quarterly) data by YCharts

3. High profit margin gives the company flexibility

Thanks to its high-priced products, Apple also rakes in some terrific profits, with its net margin normally at 20% or better of revenue. 

AAPL Profit Margin (Quarterly) data by YCharts

Margins like these give the company the flexibility to battle inflation and absorb the impact of higher costs without necessarily passing that off to customers in the way of price increases. 

4. Its earnings multiple is at a more reasonable valuation

Since the start of the year, shares of Apple have fallen 17%, which is about in line with the S&P 500's performance. Investors may want to consider buying the stock on the dip because, with respect to earnings, Apple is trading right around its five-year average, which may be a deal for this top growth stock.

AAPL PE Ratio data by YCharts

Apple's stock isn't trading at a huge discount by any means. But at the same time, investors could be waiting a long time if they expect a strong business like Apple's to fall much lower than where it is. A lower valuation could entice more investors to buy shares of Apple.

Apple is a safe stock to park your money in right now

A business with a strong cash position and brand loyalty, like Apple's, makes for a no-brainer type of investment. Although its yield of 0.6% isn't significant, between the buybacks and continued new iPhones, growth in Apple+, and the entire Apple ecosystem, there are plenty of reasons to be bullish on the company's future. Its fundamentals are sound and with a loyal fanbase, Apple is a safe stock to buy and hold for years. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Even while being down over 18% year to date (as of Nov. 15), Apple (NASDAQ: AAPL) is the world's most valuable public company, with a market cap of over $2.3 trillion. For perspective, that's more than Alphabet and Amazon combined. Apple didn't reach this size by luck, either -- it's well-deserved.

Between its world-class products and brand loyalty that's second to none, Apple is a force to be reckoned with. Here are three reasons you should buy Apple stock in 2023 and never sell.

1. Apple is becoming a player in the financial industry

Apple's first time dipping its toes in the financial services space was in 2014, when it announced Apple Pay. Apple Pay gave people the convenience of paying with a phone, but not many looked at it as Apple making a serious entrance into the industry. Fast forward to 2019, with the announcement of the Apple Card, and it became a bit more apparent that Apple was getting serious.

With the Apple Card, Apple partnered with Goldman Sachs (NYSE: GS) to approve applications and fund the loans. This is why, when they announced Apple Pay Later, it was a clear message that other financial companies should plan accordingly. Apple Pay Later is the company's move into the buy now, pay later industry. But, more importantly, it's the first time Apple is underwriting and funding loans by itself 

With Apple able to provide financial services without any middleman, it's in a prime position to use its vast tech power to take the ever-growing financial technology (fintech) space by storm. The global fintech market was just over $115 billion in 2021 and is expected to reach over $936 billion by 2030. I'd bet Apple wants a decent-sized slice of that pie.

2. Streaming is moving in a positive direction

Apple's streaming service, Apple TV+, undoubtedly lags behind other platforms like Netflix, Hulu, and Disney+, but there should be brighter days ahead as the company puts more resources behind the platform. In June, Apple and Major League Soccer (MLS) -- the world's fastest-growing soccer league -- announced they had struck a deal to show all MLS matches worldwide for 10 years beginning in 2023.

The MLS deal, worth at least $2.5 billion, is the first time a major American sports league has moved all of its games to a streaming platform. It's also the first time in major professional sports history that the games won't have any restrictions or local blackouts. It's a step that shows Apple is becoming more serious about making investments to become more competitive in the streaming space.

Will Apple TV+ ever grow to become a top three streaming service? It's not likely in the foreseeable future. But you can bet it will continue to grow and slowly but surely begin to gain some market share.

3. It's an undisputed cash cow

In a year defined by high inflation and economic anxiety, Apple managed to bring in $394.3 billion in revenue in its 2022 fiscal year (up 8% year over year) and a record $90.1 billion in the fourth quarter alone (up 8% year over year). For perspective, Visa, the 10th largest U.S. company by market cap, brought in $29.3 billion in its fiscal year.

There's no denying that Apple is a cash cow, and there's no reason to believe it'll slow down in the future. Apple has more cash on hand than a lot of companies in the S&P 500 are worth. Although holding on to too much cash and not investing in other areas can slow a company's growth, I don't see this being a problem for Apple.

With a bank account that size and a commitment to innovation, Apple still has room for noticeable growth -- which is what matters as an investor. It's one thing to have a great history; it's another thing to be primed for future success. The latter is why I'm a strong believer in Apple. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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There's a reason so many investors want to own Warren Buffett stocks.

The so-called Oracle of Omaha has trounced the market in his long history an investor. Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) has nearly doubled the annual return of the S&P 500 for nearly 60 years, and thanks to the magic of compounding, that means Berkshire has returned more than 100 times what the S&P 500 has in that time frame.

Luckily, for investors, Warren Buffett's playbook is wide open, and he's made it clear what kinds of stocks he favors. Here are five simple questions to ask to determine if a stock would get the Buffett stamp of approval.

1. Does it have an economic moat?

Buffett's favorite concept in all of investing may be the "economic moat," or what most investors call a sustainable competitive advantage. Buffett once said, "The most important thing [is] trying to find a business with a wide and long-lasting moat around it, protecting a terrific economic castle with an honest lord in charge of the castle."

As he alludes to in that statement, this key attribute protects the company from competitors. Buffett likes stocks with well-known brands such as Coca-Cola or Apple; companies with limited competition and barriers to entry, like the railroad BNSF that he acquired a decade ago; or companies with strong market share and recurring revenue, like GEICO.

If you want to know if it's a Buffett stock, ask yourself if the company can withstand competition over a long period of time.

2. Does it produce cash?

Buffett doesn't generally waste his time with unprofitable growth stocks. He looks for companies that generate cash. 

Buffett likes to own businesses like insurers that produce cash in premiums that come in advance of claims. He refers to this as a "float" that allows him to reinvest that cash in stocks. He also likes sectors such as energy (for example, Chevron stock), which generate high levels of cash flow when oil prices rise. Buffett's a fan of banks and financial companies like Bank of America and American Express that have reliable profit generation from commercial lending, and he's known to invest in utilities and healthcare, which tend to generate steady cash flows.

What you'll find among almost every Buffett stock is that they produce reliable cash flow, and many of them pay a dividend. 

3. Does it have a long track record? 

Warren Buffett doesn't generally chase the latest trends whether they be dot-com stocks in the 1990s or cloud software stocks more recently.

Instead, he prefers to own companies with long track records and operating histories. Often, he's studied these companies for years, or is well-acquainted with their brands. With Coca-Cola, for example, he had seen its success for 50 years before becoming an investor. When Buffett decided to invest in tech, he bought stock in IBM, because he'd followed it for decades and understood the business. While that investment didn't pan out, it nonetheless reflects Buffett's approach of studying a company for a long time.

Similarly, in financials, he prefers legacy banks over fintech, because banks have proven their business models over long periods of time. Not only are they less risky, but they also generate reliable cash flow.

4. Does it outperform in bear markets?

Historically, Berkshire has best demonstrated its fortitude during bear markets. Buffett hoards cash to buy stocks when they're cheap, and he's known for taking advantage of sell-offs like during the financial crisis when he took a high-yielding stake in preferred stock in Bank of America. Berkshire has also outperformed the stock market by a wider margin in bear markets, including this year.

Because many of Buffett's favorite stocks have stood the test of time, they tend to do well in bear markets, and many of his favorite industries -- including consumer staples, insurance, utilities, and healthcare -- are known for being recession-resistant.

Buffett doesn't exclusively buy recession-proof stocks. He owns cyclical stocks in industries like energy, banking, and industrials, but in general, he prefers to buy stocks that can outperform in bear markets or at least have demonstrated an ability to recover from them.

5. Is it a good value?

Finally, Buffett is a classic value investor. He wants to buy stocks that are trading below their intrinsic value, which is typically estimated with a discounted cash flow model.

The quality of the company is more important to the Berkshire chief than the price. He has famously said, "It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

However, if he finds a stock he likes, he'll only buy it if he believes it's a good value at the current price. In the bull market during the 2010s, Buffett often lamented that stocks had become too expensive. With prices now down, it wouldn't be surprising to see Berkshire deploying its cash hoard, which is currently worth more than $100 billion.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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When Warren Buffett gets something right, he really gets it right. The legendary investor's stock picks through the years have helped him become one of the wealthiest people on the planet.

But much of Buffett's success has stemmed from decisions he made a long time ago. What are examples of his best picks more recently? Here are Buffett's biggest winners over the past five years -- and whether or not they can keep winning in the future.

1. Apple

In his 2021 letter to Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) shareholders, Buffett wrote that the conglomerate had "four giants." Three of them were Berkshire subsidiaries: the company's insurance businesses (including Geico and General Re), railroad operator BNSF, and energy provider Berkshire Hathaway Energy. But Berkshire doesn't control one of those giants -- Apple (NASDAQ: AAPL).

Currently, Berkshire owns only a 5.8% stake in Apple. However, the tech stock ranks as Berkshire's top holding by far, representing 38.8% of the total portfolio. Buying such a huge position in Apple has proven to be one of Buffett's smartest moves ever. The stock has skyrocketed around 240% over the past five years.

It's no secret why Apple has delivered such a tremendous gain. The company's iPhone remains highly popular, especially with the shift to high-speed 5G networks. Apple's services business has also become a much bigger revenue driver in recent years.

2. Mastercard

Buffett has been a longtime fan of credit card stocks. Berkshire's portfolio includes American Express and Visa. The former ranks as Berkshire's No. 5 holding. But the biggest winner over the past five years has been Mastercard (NYSE: MA).

Mastercard's gain of more than 125% is due in part to a broad-based shift away from cash. A sharp increase in e-commerce also provided a nice boost.

Despite Mastercard's status as one of Buffett's biggest winners in recent years, it's still not one of his favorite stocks. Berkshire reduced its position in Mastercard in the fourth quarter of 2021. Mastercard now makes up only 0.4% of Berkshire's total portfolio.

3. Moody's

Buffett technically didn't decide to invest in Moody's (NYSE: MCO). Berkshire owned shares of Dun & Bradstreet in the past. It received shares of Moody's when D&B spun off the credit rating business in 2000.

While Berkshire later sold its stake in D&B, it retained a position in Moody's. That turned out to be a wise move. The stock more than doubled over the past five years and has delivered more than a 20x gain since the spin-off from D&B.

However, Buffett could have made even more money from his investment in Moody's. He sold some of the stock in 2009. The Oracle of Omaha referred to this as a "billion-dollar mistake" less than two years later.

Can they win in the future?

None of these three stocks are performing very well so far in 2022. Only Mastercard is beating the S&P 500. But can these stocks win in the future? I think so.

Apple remains a great stock to buy for the same reasons it's made Buffett so much money in the past. Demand should continue to be strong for iPhones for a long time to come. Apple has opportunities to extend its smartphone dominance by introducing augmented reality applications. 

Mastercard should benefit as digital payments replace cash in many cases. The company could especially profit as open banking (expanding interoperability between financial service providers) picks up momentum.

Moody's has a strong moat with its credit rating business. It also has significant growth potential for its analytics unit.

My view is that Apple, Mastercard, and Moody's should be big winners for Buffett over the next five years. And I think all three are good picks for investors who aren't worth close to $100 billion, too. Warren Buffett doesn't have to be the only person to really get it right.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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What happened

Shares of big tech stocks Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Intel (NASDAQ: INTC) all moved significantly higher today, rocketing 6.2%, 6.6%, and 5.5%, respectively, as of 12:33 p.m. ET.

Those are massive moves for companies that big, but today was no ordinary day. After basically a year of negative surprises in the monthly Consumer Price Index (CPI) releases, with some exceptions, today's CPI print was lower than expected, fueling hopes of a Federal Reserve pause on its aggressive interest rate hikes.

These tech giants are each at least partially exposed to the troubled PC sector, which has been one of the hardest-hit areas of tech. While enterprise spending on cloud and servers has been hanging in, the prospect of more interest rate hikes or recession had led to fears another shoe was to drop. So today's print was especially positive, given that the sooner inflation declines, the sooner the Fed can stop hiking interest rates, and the greater the possibility of avoiding a recession. 

So what

Obviously, Apple and Microsoft make the two main operating systems for virtually all PCs, and Intel's largest business segment is its PC processors. Therefore, each stock had seen a big sell-off this year, despite their size, moats, and relatively limited competition.

Of note, technology research firm Gartner projects that third-quarter PC shipments were down a stunning 19.5% year over year -- the biggest drop since it began tracking PC shipments in the 1990s.

So why is today's CPI print so important in relation to PC sales? Well, the rapidly rising interest rate hikes tend to hit interest rate-sensitive items hardest first, which are usually big-ticket items like housing, autos, home electronics, and business fixed investments, which these days include data centers and enterprise PCs.

Add to that the fact that so many consumers bought new computers during the 2020-2021 timeframe, and could therefore defer the purchase of a new computer, and the rapid shift in rates led to a huge air pocket in PC sales. So, the potential for a pause in interest rate hikes could give big-ticket items a boost from their current severe downturn. 

Apple has held up much better than others, as it had fallen "only" 23.6% this year, as opposed to 32.8% for Microsoft and 44.5% for Intel.

AAPL Year-to-Date Total Returns (Daily) data by YCharts

It's somewhat surprising that Apple has done better than Microsoft, given that it was thought consumer spending on electronics is generally weaker than enterprise spending. Microsoft's More Personal Computing segment, which is geared toward consumer-facing PCs, video games, and Bing digital advertising, is only 30% or so of the business, as opposed to Apple being predominantly a consumer-facing company, so it's strange that Apple had held up better than Microsoft this year. The outperformance does go to show how strong Apple's brand is and how much of a staple the iPhone is.

Intel has really been feeling the pain of the PC downturn this year, because that had been the company's cash cow. New Intel CEO Pat Gelsinger has ambitious plans to catch up to Taiwan Semiconductor Manufacturing in leading-edge semiconductors by achieving five node transitions in four years, while also building out a massive foundry ecosystem to serve third-party chip designers.

That's incredibly hard and very expensive to do, which is why the plummet in PC sales has been so harmful to Intel this year, as it deprived the company of needed cash to execute its investment plans. That's why Intel has traded down to just a single-digit P/E ratio this year.

Given the shellacking these stocks have already taken, and given that the market is forward looking, it's no surprise they are ripping higher at the prospect of inflation cooling off.

Now what

Given the lags with which the Fed's economic policy operates, investors should know that while inflation is slowing, it's because the economy is also slowing. Over the coming months, the Fed will try to keep rates high enough to cool inflation further, without tipping the economy into a recession. Despite today's rally, that's still a tricky proposition. 

A recession would be bad news for all stocks, but of these three, especially Intel, since it is in a capital-intensive hardware business.

On the other hand, today's promising CPI print could allow the Fed to slow down or even stop its rate increases. That would be good for all economically sensitive stocks, as long as the economy doesn't have too bad of a downturn.

As is often the case, Apple and Microsoft still look like strong core holdings for the long term, even in spite of this year's declines. With Intel, an investment really comes down to your belief in CEO Pat Gelsinger's vision and ability to execute. If the turnaround works, Intel stands to have the most upside of these three names; however, if all that spending doesn't result in solid returns or Intel catching up to Taiwan Semi in leading-edge technology, it could be a problem, even if Intel's stock does look cheap today.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Shares of Apple (NASDAQ: AAPL) and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) moved in opposite directions after their latest earnings reports. Apple's stock jumped nearly 8% on Oct. 28 after it soundly beat Wall Street's expectations, but Alphabet's stock tumbled 9% on Oct. 26 after it broadly missed analysts' expectations on both the top and bottom lines.

Apple's stock has still declined 12% this year as of this writing, but Alphabet fared much worse with a 34% drop. Let's see why Apple outperformed Alphabet by such a wide margin and if it will remain the better bear market buy.  

The key differences between Apple and Alphabet

Apple generated 79% of its revenue in its latest quarter by selling iPhones, iPads, Macs, and other hardware products and accessories. The remaining 21% came from its Services business, which houses its App Store and subscription-based services. It ended fiscal 2022 (which ended in September) with over 900 million subscribers across all of its services.

Alphabet generated 79% of its revenue in its latest quarter from Google's advertising business, which houses the ads from its core search engine, its advertising network, and YouTube. The rest of Alphabet's revenue came from Google's Cloud platform (10% of its revenues), its subscription-based services, hardware products, and other smaller businesses.

Apple's hardware business faced supply chain constraints throughout the first nine months of fiscal 2022, but that pressure eased in the fourth quarter. It was also affected by intermittent COVID-19 lockdowns in China, but its sales in the Greater China area (19% of its fiscal 2022 revenue) still increased nearly 9% for the full year.  

Alphabet's main challenge is the slowdown of the digital advertising market. Its ad sales had recovered quickly from the pandemic in 2021, but inflation, rising rates, and other macro headwinds all caused companies to buy fewer ads this year. YouTube, which suffered its first year-over-year revenue decline last quarter, also struggled to keep pace with ByteDance's TikTok in the short video market. Google's Cloud business continued to grow, but it couldn't fully offset its slower ad sales.

Which tech giant is growing faster?

Apple's revenue rose 33% to $365.8 billion in fiscal 2021, driven by robust sales of the iPhone 12 (its first family of 5G devices), while its EPS surged 71%. Its growth cooled off in fiscal 2022 as it lapped those 5G upgrades and it faced persistent supply chain headwinds, but its revenue still increased 8% to $394.3 billion as its EPS rose 9%. Analysts expect its revenue and earnings to grow 4% and 5%, respectively, this year.

Those growth rates might not seem impressive, but they don't factor in any new devices -- including its long-rumored AR (augmented reality) headsets -- or services that Apple might launch in 2023. Apple ended fiscal 2022 with $169 billion in cash and marketable securities, so it could still easily expand into new markets with big investments and acquisitions.  

Alphabet's revenue rose 41% to $257.6 billion in 2021 as its advertising business posted a strong post-pandemic recovery. Its EPS also increased a whopping 91%. But in the first nine months of 2022, its revenue only grew 13% year over year to $206.8 billion (and decelerated throughout all three quarters) as its EPS declined 14%. Analysts expect its revenue to rise 10% this year but for its earnings to decrease 15%.

That slowdown can be entirely attributed to the market's softening demand for digital ads. Its overseas revenues are also being gobbled up by a strong dollar, which could continue to strengthen as interest rates continue to rise. Nevertheless, analysts expect Alphabet's revenue and earnings to grow 9% and 14%, respectively, as some of those headwinds dissipate.

Alphabet ended the third quarter with $22 billion in cash and equivalents, which also gives it ample room for fresh investments and acquisitions. But for now, Alphabet plans to rein in its spending until its core advertising business recovers.

The valuations and verdict

Apple's stock outperformed Alphabet's this year because its core business seemed more resistant to the macro headwinds. But at 24 times forward earnings, Apple's stock looks a bit pricey relative to its near-term growth. Alphabet trades at just 17 times forward earnings, but that lower valuation suggests that investors aren't too optimistic about its future. 

I own both of these stocks, and I think they're still great long-term investments. But if I had to buy more shares of one of these stocks right now, I'd pick Apple instead of Alphabet because its near-term growth is more predictable, it's better insulated from the macroeconomic headwinds, and it's widely expected to roll out new products and services -- which the market probably hasn't fully priced in yet -- in 2023 and beyond. Alphabet's stock might seem cheaper, but it probably won't command a higher valuation until the broader digital advertising market recovers. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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