Warren Buffett's Recent Apple Stock Sale: What Should Investors Do?

Currently, Apple's valuation and revenue growth present challenges, but the company holds strong long-term potential.

Warren Buffett, along with his company Berkshire Hathaway (BRK.A) (BRK.B), has always been closely watched by investors. With a net worth exceeding $145 billion and a market cap nearing $1 trillion, every move he makes attracts significant attention.

A major focus recently has been on Berkshire Hathaway's decision to sell a considerable portion of its shares in Apple (AAPL). In the first half of 2024, the company offloaded around 505 million shares—115 million in the first quarter and another 390 million in the second quarter. This action reduced Berkshire's Apple shares to 400 million, now constituting 29.4% of its investment portfolio.

Despite this sell-off, Apple remains the largest holding in Berkshire Hathaway’s portfolio, far outweighing its second-largest investment in American Express at 13.1%. Other significant holdings include Bank of America (10.3%), Coca-Cola (8.7%), and Chevron (5.7%).

Given Berkshire's considerable reduction in Apple shares, many investors are left wondering if they should consider this a warning sign and follow Buffett's lead. However, this article argues that investors should not feel compelled to react in the same way.

Reasons Behind Berkshire Hathaway's Apple Stock Sale

Several factors could explain the reasoning behind Berkshire Hathaway's recent decision to sell a significant amount of Apple shares. Firstly, it seems likely that Buffett and his team are prioritizing cash, especially in the context of rising interest rates and high stock valuations.

Apple's current trading valuation sits at 31 times its projected earnings, which is notably higher than its average over the past five years. This has contributed to the perception that the company is overvalued, especially when considering when Berkshire first started investing in 2016.

Another possible motive for the sell-off could be a strategic move to lock in profits ahead of potential changes in capital gains tax rates, which have been discussed by political figures. Selling shares now, while the corporate tax rate stands at relatively low levels (21% currently), could result in significant savings for Berkshire Hathaway and its investors in the long run.

Should Investors Follow Buffett's Strategy?

If you already own Apple shares, this analysis suggests that there’s no urgent need to sell. The tax benefits of such a large-scale operation are not as relevant for individual investors with smaller stakes.

Apple is undeniably a top-tier company with global reach and influence, generating $85.8 billion in revenue in its latest quarterly report. Its net income of $21.5 billion surpasses the entire revenue of certain other large companies, such as Adobe.

That said, Apple faces challenges regarding stagnating revenue growth, leading to a more complex consideration on whether to heed Buffett's actions. Currently, Apple experiences only 5% year-over-year revenue growth, which raises questions about its valuation relative to its earnings.

Despite these challenges, long-term investors might still find value in Apple. The company has faced some hurdles in the smartphone sector, with the iPhone accounting for 45% of its total revenue. However, efforts are underway to revitalize sales and shorten upgrade cycles, positioning it for future success.

In Buffett’s own words, “It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” Current evaluations can vary among investors, but Apple is recognized as an impressive business. Therefore, investors focused on the long-term should maintain a forward-thinking perspective.

Apple, Investing, Buffett