Nearly 50 of Berkshire Hathaway39s 369 billion portfolio led by

Nearly 50% of Berkshire Hathaway's $369 billion portfolio, led by Warren Buffett, is invested in just one stock

Berkshire Hathaway, which has exposure to various industries including insurance, railroads and energy, also owns a huge public stock portfolio. Individual investors view this list of holdings to find potential investment opportunities.

It's hard to ignore that Apple (AAPL -0.90%) accounts for nearly half of Warren Buffett's portfolio. This investment has performed extremely well, as shares of the iPhone maker have risen approximately 640% since early 2016, around the time Berkshire Hathaway first began buying the stock.

Investors can gain insight by discovering what qualities first intrigued Buffett about Apple. And if we look at things as they are today, with a long-term time horizon, we can now draw a conclusion about the investment benefits of this top FAANG stock.

A clear purchase decision

Berkshire Hathaway's portfolio includes well-known companies such as American Express, CokeAnd Kraft Heinz. What all these companies have in common is the presence of a strong brand. This has long been Apple's key competitive advantage and differentiator, and it's probably what Buffett noticed when he started buying shares.

In the consumer electronics industry, it is usually difficult to achieve long-term success due to strong competition and price pressure. Apple is unique in that it can buck this trend and demonstrate its pricing power. The company sells its hardware products at premium prices that consumers are willing to pay. This explains why Apple's gross margin has averaged 41% over the past five years.

Past and current executives, from Steve Jobs to Tim Cook, have done a fantastic job maintaining Apple's brand strength. I think this gives Buffett confidence that the company will be dominant in the future.

The Oracle of Omaha – as Buffett is known – was certainly also impressed with Apple's financial profile. This is one of the most profitable companies in the world. The operating margin has always been over 24% in the last 10 financial years. And the company's return on invested capital of 56.9% demonstrates a financially exceptional company.

Before investing in a stock, Buffett wants to find out whether the company in question will generate significantly higher profits in the future. Between fiscal years 2016 and 2023, Apple's net income increased at a compound annual rate of 14.7%. Given this track record, it's hard to imagine a scenario where the bottom line doesn't continue to grow in the coming years.

And perhaps the most important factor that encouraged Buffett's decision to add this technology stock to Berkshire's portfolio was its ridiculously cheap valuation. In the first quarter of 2016, Apple shares traded at an average price-to-earnings (P/E) ratio of 10.6. Given the brand's recognition and impressive financials, this valuation made the stock a natural buy at the time. That's why Buffett took advantage of the opportunity.

Apple in the next decade

Before you rush to add Apple to your portfolio, it's a good idea to look at the company from a new perspective. Ultimately, investors need to figure out whether Apple can beat this S&P 500 as we look to the next decade.

To be honest, I have no confidence in this outcome. One reason is the company's slowing growth. Apple reported a 2.8% decline in revenue in fiscal 2023. The weaker economic situation is partly to blame, but could also indicate that the company is at a much more mature stage of its life cycle.

I also think valuation is expensive right now. The P/E ratio is currently around 32, which is about three times what it was when Buffett first bought it.

My view that the stock is likely to underperform the broader index in the future may obviously prove to be incorrect. But based on where things stand today, I don't think Apple is a smart investment for long-term investors.

American Express is an advertising partner of The Ascent, a Motley Fool company. Neil Patel and his clients have no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Apple and Berkshire Hathaway. The Motley Fool recommends Kraft Heinz. The Motley Fool has a disclosure policy.