Warren Buffett's Recent Apple Stock Sales: What Should Investors Consider?

Apple's current valuation and revenue growth may not appear promising, but its long-term potential is still significant.

Warren Buffett and Berkshire Hathaway (BRK.A) (BRK.B) are under close scrutiny for their investment decisions, especially considering Buffett's impressive net worth of over $145 billion and Berkshire's market cap nearing $1 trillion.

Recently, Berkshire Hathaway made headlines by selling a substantial amount of its Apple (AAPL) shares. Specifically, in the first half of 2024, the company sold around 505 million shares—115 million in the first quarter and a staggering 390 million in the second. Following this sell-off, Berkshire now holds 400 million Apple shares, accounting for 29.4% of its total stock portfolio.

Despite the reductions, Apple remains Berkshire Hathaway's largest investment by a considerable margin. Its second-biggest holding is American Express, which makes up 13.1% of the portfolio. Other top holdings include Bank of America (10.3%), Coca-Cola (8.7%), and Chemical Company (5.7%).

The decision to decrease their Apple stake has sparked a wave of curiosity among investors, prompting many to wonder if they should follow suit. In my opinion, they should not rush into any decisions, and here’s why.

Reasons Behind Berkshire's Apple Share Sales

Several factors likely influenced Berkshire Hathaway's recent reductions in Apple stock. Firstly, Buffet may believe that having cash on hand is more beneficial right now, especially in light of rising interest rates and what some perceive as high stock valuations.

When considering Apple, its current trading price reflects significant growth expectations, with a price-to-earnings ratio of 31. This is well above its historical average from the past five years, particularly when Berkshire started acquiring shares in 2016.

Another potential reason for the divestiture could be related to tax strategies. With discussions around increasing capital gains tax rates under consideration by political figures, Buffett might be looking to secure profits now to avoid heavier taxes in the future. Selling shares at today’s tax rates could lead to substantial savings for both Berkshire and its investors.

Should Investors Mimic Buffett's Moves?

For those already invested in Apple, there seems to be no immediate need to sell your shares. While the potential tax benefits are more relevant to a massive corporation like Berkshire, everyday investors would not see the same level of advantage.

Moreover, Apple continues to be a leading company worldwide, attracting billions in revenue. In its most recent quarter ending June 29, Apple showcased substantial earnings, reporting $85.8 billion in revenue and $21.5 billion in net income. This performance highlights that Apple remains a robust business.

However, the question surrounding whether investors should heed Buffett’s decisions becomes more complex due to Apple’s recent revenue growth challenges and its valuation. Currently, Apple faces a sluggish smartphone market, which has impacted its revenues since iPhone sales constitute 45% of total income. Nevertheless, the company is implementing strategies to stimulate sales and enhance its product upgrade cycles.

Warren Buffett wisely noted, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." While whether current Apple prices are "fair" is subjective, it is undeniable that Apple remains an exceptional company. Long-term investors should focus on future prospects instead of immediate valuations.

Apple, Buffett, Berkshire