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Warren Buffett, the “Oracle of Omaha,” is one of the most successful investors of all time. Buffett, who heads Berkshire Hathaway, has a net worth close to $80 billion.
Buffett is a value investor in that he mostly considers the intrinsic value (fair value of a stock calculated by its future earnings power) of a stock for making investment.
His investment apart from value also includes understanding of the business, competitive advantages and a capable management.
Computer and Technology Sector 5YR % Return
Apple: Buffett’s Favorite Tech Investment
Given this, Buffett has shied away from most technology companies, given the difficulty to understand the businesses. He so far restricted himself to buying Apple Inc. AAPL and IBM Corp. IBM stock. But at the start of this year, it was reported that he had substantially increased his position in Apple.
Reportedly, Berkshire Hathaway had about 130.2 million shares of Apple valued at nearly $20 billion. Buffett got interested in Apple after one of the Berkshire executives (either Todd Combs or Ted Weschler) purchased 10 million shares of Apple after its record first-quarter 2016 results, adds Forbes.
Per analysts, Buffett’s investment in Apple is very obvious. Apple’s business model is simple to comprehend as it is basically a consumer electronics company with a huge user base. Rather, “loyalist” is a better word, as it is widely perceived that Apple users do not switch.
Apple’s brand is something that gives it an edge over its competitors. Apple is the most valuable brand in the world. Per Seeking Alpha, “Brand strength allows Apple to charge higher prices and enjoy higher margins for its ‘premium’ product.”
Moreover, Apple is one of the biggest dividend-paying stocks in the world after it an announced a 10.5% hike in May this year. It also has a huge stock buyback plan in place, all facilitated by a huge cash pile of over $250 billion.
A few weeks back while talking to CNBC, Buffett had said that he had never sold a single share of Apple. Buffett remains interested in Apple; he was quoted by CNBC saying, “I certainly was buying last quarter and I don’t pay attention the calendar when I’m buying.”
However, if we see the present scenario, we can’t overlook the fact that Apple has been hit by stiffening competition from cheaper handsets.
Currently, Apple carries a Zacks Rank #3 (Hold) and has a Value score of ‘B.’
Tech Sector Attractive for Investment
Talking about technology, it has emerged as an attractive sector for investment in the past few years, given plenty of growth stocks. The sector has had a remarkable run so far this year, outperforming all major indices. The Technology Select Sector SPDR ETF XLK has registered a return of 23.9% in the year-to-date period, significantly above the NASDAQ Composite (IXIC), S&P 500 (GSPC) and Dow Jones Industrial Average (DJI) gains of 21.3%, 13% and 14.6%, respectively.
The sector is benefiting from increasing demand for cloud-based platforms, growing adoption of Artificial Intelligence (AI) solutions, Augmented/Virtual reality devices, autonomous cars, advanced driver assisted systems (ADAS) and Internet of Things (IoT)-related software.
Consequently, technology is a profitable area for investing, with significant growth opportunity and good value options.
The Winning Strategy
Using the Zacks Stock Screener and Style Score, we’ve highlighted three stocks that might be good for investment, if we follow Buffett’s lead.
All of these stocks currently have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a Value Style Score of A or B. Notably, back-tested results show that this favorable combination handily outperform other stocks.
Jabil Inc. JBL is one of the largest global suppliers of electronic manufacturing services (EMS). The company offers electronics design, production, product management and after-market services to customers catering to aerospace, automotive, computing, consumer, defense, industrial, instrumentation, medical, networking, peripherals, storage and telecommunications industries.
The company sports a Zacks Rank #1. Additionally, the stock has a Value Score of A.
The company has surpassed the Zacks Consensus Estimate by an average of 6.58% in the trailing four quarters.
Jabil’s stock has gained 26.3% year to date, substantially outperforming the 16.2% rally of its industry.
TIM Participações S.A. TSU is a holding company, the sole company in Brazil offering mobile cellular service, by means of its subsidiaries TIM Celular S.A. and TIM Nordeste S.A.
The company carries a Zacks Rank #2 and has a Value Score of A.
The company has surpassed the Zacks Consensus Estimate by an average of 41.8% in the three out of the trailing four quarters.
TIM Participações’ stock has gained 57.5% year to date, substantially outperforming the 7.4% rally of its industry.
TransAct Technologies Inc. TACT designs, manufactures and markets transaction-based printers and related products under the ITHACA and MAGNETEC and TRANSACT.COM brand names. The company focuses on five vertical markets: point-of-sale (POS), gaming and lottery, financial services, kiosk and Internet.
The company carries a Zacks Rank #2. Additionally, the stock has a Value Score of A.
The company has surpassed the Zacks Consensus Estimate by an average of 216.67% in the trailing four quarters.
TransAct Technologies’ stock has gained 49.9% year to date, substantially outperforming the 20.4% rally of its industry.