Why Buffett Keeps Buying Apple

All the doom and gloom surrounding Apple Inc. (NASDAQ: AAPL), which centers primarily on weak demand for its flagship iPhone X and the growing saturation in the smartphone market, hasn't fazed one famed investor. Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) CEO Warren Buffett, who is arguably one of the most well-known and successful investors of all time, has continued to buy massive caches of the iPhone maker's stock.

Buffett added a mind-boggling 75 million Apple shares last quarter -- on top of the 165.3 million shares Berkshire already owned -- increasing its share count by a whopping 45%. That brings the company's total stake in Apple up to about 5% of shares.

If the naysayers are right, why does the Oracle of Omaha continue stocking up on Apple's shares?

A short history

In case you haven't been following along, it wasn't Buffett but rather one of his top lieutenants who first purchased Apple stock in early 2016. After reviewing that initial purchase, Buffett himself began loading up on Apple shares, buying considerably more during the quarter, with purchases totaling 10 million shares.

As time has passed, Buffett's love for the iPhone maker has only grown, and he's continued investing in the company ever since.

Seeds of growth

Buffett gave some insight into those recent purchases, particularly in light of recent fears regarding weak iPhone X sales. He reminded investors that he has a much longer time horizon:

This is classic Buffett and shows that he believes Apple will thrive in the coming decade.

Be greedy when others are fearful

This famous Buffett quote seems to capture one of the principal reasons the Oracle of Omaha made sizable investments in Apple last quarter. Apple announced a massive buyback in conjunction with its recent financial release, seeking to capitalize on the same negative sentiments about the company as Buffett.

During Berkshire's annual shareholder meeting on Saturday, Buffett commented on Apple's plan to repurchase $100 billion of its shares. "I'm delighted to see them repurchasing shares. We own five percent of it. With the passage of a little time, we may own six or seven percent because they repurchase shares."

Berkshire's vice chairman, Charlie Munger, told investors that he and Buffett don't always approve of buybacks, but there were times when it made sense. "The reason companies are buying their stocks is that they are smart enough to know it's better for them than anything else." With the large amount of cash flow the company generates, some believe that Apple could make a large acquisition, but Buffett doesn't agree. "I don't see anything that would make a lot of sense for them," Buffett said.

Still a bargain?

Apple recently reported record fiscal second-quarter financial results, with sales of $61.1 billion, up 16% year over year, and net income of $13.8 billion, up 25% over the prior-year quarter. Investors breathed a sigh of relief, sending the stock higher.

Even after that recent move, Apple still sports a compelling valuation, trading at just 16 times forward earnings. That number goes even lower if you factor in the mound of cash that Apple plans to deploy on shareholder returns. Apple just raised its dividend, too, currently yielding 1.4%, with a payout ratio of less than 25% -- so look for future increases.

With all this going for it, no wonder Buffett keeps adding to his massive stake in Apple -- and maybe you should, too.

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Danny Vena owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Berkshire Hathaway (B shares). The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.