One of the most interesting places to look for investment ideas is the list of companies owned by Berkshire Hathaway (BRK.A -0.63%) (BRK.B -0.52%). Its longtime CEO Warren Buffett is famous for his investing acumen, making Berkshire’s portfolio a fascinating look into the mind of one of the world’s greatest investors.
Buffett has a reputation for sticking within his circle of competence. Insurance companies and railroads are more commonly associated with Buffett than emerging technology. However, if the rumors are to be believed, there’s a chance that Buffett may find himself as the owner of a virtual reality business before the end of 2023.
Apple and the constant rumors
While anything is possible, if the Berkshire portfolio ends up owning a virtual reality company, it’s most likely to be because of Apple (AAPL 0.41%). While it’s commonly believed that it was one of Buffett’s lieutenants at Berkshire who first took a stake in the consumer tech giant, Buffett has been effusive in his praise of Apple and its CEO Tim Cook. Over the years, Apple has grown to become Berkshire’s largest holding.
There have been speculations for years that Apple is developing an augmented reality (AR) or virtual reality (VR) device. Over the past months these rumors heated up, with reports that references to an AR/VR device were found in code for other device apps.
While these are still rumors, Apple’s track record suggests that the creation of a brand-new device that could define a new category is believable. After all, the iPhone, iPad, and Apple Watch were significant in the development of the global smartphone, tablet, and smartwatch markets.
Apple also has several years of experience in the AR space already. In June of 2017, Apple introduced development software to integrate AR into its latest iPhone operating system. In the ensuing years, more and more companies have added AR features to their apps. This has given Apple years of data and feedback so that if the company does debut a hardware device this year, it won’t be starting from scratch.
Don’t buy the rumor, buy the business
To be clear, rumors about a new device should not be a reason for investors to buy Apple stock. There’s always a chance Apple abandons this idea, or that the timeline gets delayed. Fortunately for both Berkshire and individual shareholders, Apple is still a wonderful business to own.
When Apple reported its 2022 results (for its fiscal year, ending in September), it was a clear demonstration that it is still a strong growth company. While its year-over-year revenue increase was only 8%, Apple saw growth in all but its iPad product categories. Additionally, net sales increased in every geography other than Japan.
This growth led to $111 billion in free cash flow. In a clear demonstration of Apple’s strong financial position, this is the cash left over after any investments it made into a potential AR/VR device. Even if the new hardware doesn’t come to pass, investors are owning one of the best businesses in the world.
Finally, Apple has a long track record of rewarding shareholders. Over the past 10 years, Apple has reduced its shares outstanding by about 40%. Share buybacks have the effect of making each share owned by an investor worth more, which is a nice benefit to owning Apple stock.
Should investors buy Apple stock now?
Apple may or may not release an AR/VR device in 2023. Considering that Apple is a wonderful company to own regardless, I think the recent rumors are an interesting reason to take a second look at the business for those who are not already shareholders.
If the new device does get announced, Apple has a track record of success in new hardware categories and this could be good news for the company. If the year ends with no new device, Apple is still a worthy addition to any portfolio.
Jeff Santoro has positions in Apple and Berkshire Hathaway. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway, long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway, short January 2023 $265 calls on Berkshire Hathaway, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.