Fund manager with 54% gains last year explains why AAPL is a key investment

A portfolio manager who last year achieved 54% gains for the funds he invests has explained why AAPL is a key investment, making up a third of his portfolio…

John Huber told Business Insider that he follows the advice of Warren Buffett to invest only in those companies which truly persuade you of their prospects, and to invest for the long term.

Like Buffett, Huber leans on a less-is-more approach when selecting stocks.

Due to the firm conviction he holds when choosing issues, his portfolio only consists of 5-7 picks, with 80% of the funds assets allocated in the top five or six positions. He says he doesn’t need to dilute his performance with ancillary ideas that are only there for diversification purposes […]

Apple makes up about one-third of Huber’s holdings.

He said that free cash flow is the main metric he uses when valuing a company, and that’s why he saw such a huge opportunity with AAPL.

‘Free cash flow is the metric that I like to use,’ he said. ‘It’s really the amount of after-tax earnings that the business throws off that it doesn’t need to reinvest in order to maintain its current position’ […]

In late 2018, when Apple’s stock dived due to fears over tariffs, a slowing iPhone cycle, China sales, and a broader market decline, Huber pounced on the opportunity.

‘The stock was trading close to 10 times free cash flow, and I felt the market was overly concerned about near-term iPhone sales and the impact of tariffs, both of which I thought would impact the short-term results but not the long-term value of the brand,’ he said in a December 2018 newsletter to clients.

His timing couldn’t have been better: Apple’s stock is up over 100% from its Dec. 2018 low.

He said that Apple’s ecosystem is what reassures him about the company’s long-term prospects.

Huber also notes how Apple’s other revenue streams — from products including AirPods, Apple Watches, iPads, and Macs — are ‘really predictable because they all plug into that same ecosystem.’

To him, predictable sales translate to predictable free cash flow, all else equal.

‘The big picture with Apple is it’s got a very powerful brand and a very strong likelihood that current customers are going to be future customers,’ he concluded. ‘I think it’s predictable that in five years people are going to be lining up for whatever it is Apple is selling.’

Huber is not alone in thinking AAPL is a key investment: Two analysts have this month predicted that the stock could go as high as $375 to $400 by the end of the year.