Last weekend, Berkshire Hathaway held its 2022 annual shareholder meeting in Omaha, Nebraska. Chairman and CEO Warren Buffett and Vice Chairman Charlie Munger gave their views on inflation, Bitcoin, and the overall state of the markets.
For the many investors who follow Buffett's lead, the annual meeting is an opportunity to hear the legendary investor explain his most recent moves in the stock market. This year, Buffett revealed that he added to his positions in Apple (AAPL -1.32%) and Chevron (CVX 0.01%) -- already two of his largest holdings.
But which is the better Buffett stock, Apple or Chevron? Let's have a look.
Image source: Getty Images.
Apple was a great pick in 2016, but is Chevron the more principled pick today?
When Berkshire first added Apple shares back in 2016, many saw it as an off-brand move. After all, Buffett has a well-known aversion to tech stocks. However, looking back on Apple's valuation at the time, the move makes more sense. In 2016, Apple was trading at a price-to-earnings (PE) multiple of 9.9. Since then, shares have returned 506% -- and its PE ratio has soared to 27.0.
CVX PE Ratio data by YCharts
Berkshire owns over 900 million shares of Apple -- a 5.6% stake -- worth over $144 billion. It's by far Berkshire's largest position, at around 40% of the total portfolio. Yet Apple's relatively high P/E ratio makes it stand out compared to Berkshire's remaining top five holdings.
| Company Name | Berkshire Hathaway Stake | Value | Percent of Portfolio |
|---|---|---|---|
| Apple | 5.6% | $144,737,630,684 | 40.4% |
| Bank of America | 12.8% | $38,349,794,983 | 10.7% |
| Chevron | 8.9% | $28,347,642,397 | 7.9% |
| American Express | 20.1% | $26,093,717,577 | 7.3% |
| Coca-Cola | 9.2% | $25,232,000,000 | 7.1% |
Data source: CNBC.
Only Coca-Cola trades at a higher P/E (26.5), and that stock boasts a 2.7% dividend yield, while Apple yields a meager 0.6%. Nevertheless, Buffett noted that he bought more shares of Apple in the first quarter and would have added even more if its price had fallen further.
While Apple seems somewhat misplaced in the Oracle of Omaha's portfolio, Chevron's valuation aligns with what you'd expect from a classic Buffett stock. It trades at a P/E multiple of 15.3 and boasts a solid 3.4% dividend yield. Moreover, Chevron generated $11.01 of free cash flow per share in its most recent quarter, compared to Apple's $6.38.
Which is the better Buffett stock?
As I noted earlier, owning Apple has been great for Berkshire Hathaway. That said, it looks expensive right now. Meta Platforms, Alphabet, and even Netflix have lower P/E multiples. With that increased P/E multiple, investors would think analysts were forecasting stronger growth estimates for Apple, however, the company's 9% per annum for the next five years is lower than Netflix's 12%. What's more, none of those businesses are impacted by lingering supply chain issues like Apple is.
I think Chevron is the better Buffett stock. Wall Street analysts are projecting growth estimates of 18% annually for the next half-decade for the energy stock. Also, its modest valuation, ample free cash flow, and stout dividend fit in with what you'd expect from a classic Berkshire holding.
