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

Apple's current valuation and revenue growth may not appear promising, but its long-term potential remains unwavering. This situation has raised questions among investors, especially following significant stock sales by Warren Buffett and his company, Berkshire Hathaway.

Warren Buffett, one of the most scrutinized investors globally, often attracts attention with his financial decisions. With a net worth exceeding $145 billion and a market capitalization nearing the $1 trillion mark, his movements are closely watched by many.

Recently, Berkshire Hathaway made waves by selling a substantial portion of its Apple shares. In the first half of 2024, the company sold approximately 505 million shares, breaking down to 115 million shares in the first quarter and 390 million in the second. This decision reduced Berkshire Hathaway's Apple holdings to 400 million shares, accounting for about 29.4% of its entire stock portfolio.

Despite this reduction, Apple remains the cornerstone of Berkshire Hathaway's investments, considerably outpacing its next biggest holding, American Express, which represents just 13.1% of the portfolio. Other significant investments include Bank of America (10.3%), Coca-Cola (8.7%), and Chevron (5.7%).

The decision to trim down Apple's stake has raised concerns among investors about whether they should follow suit. Should they see Buffett's move as a signal to sell their own Apple shares? I believe the answer is no, and here's why.

Reasons Behind Berkshire Hathaway's Share Sales

There are several logical reasons for Berkshire's sell-off. First, given the current economic climate with rising interest rates, Berkshire Hathaway might be prioritizing liquidity, believing that cash will be advantageous.

Additionally, Apple’s current trading price reflects a price-to-earnings ratio of 31, which is significantly higher than its average rate over the last five years and beyond what it was when Berkshire first invested in Apple back in 2016.

Furthermore, Buffett may be looking to secure profits now ahead of potential increases in capital gains tax rates, a scenario that has been entertained by politicians like Vice President Kamala Harris. When managing such vast amounts of stock, incremental tax rate changes can lead to monumental savings.

What Should Investors Do?

If you are already a shareholder in Apple, there’s no compelling reason to sell based on Berkshire's actions. The tax strategy behind the sell-off applies differently to corporate investors like Berkshire than it does to everyday investors.

Apple continues to be a powerhouse, attracting billions of customers and generating substantial revenue. In its latest financial quarter, it reported an astounding $85.8 billion in revenue and a $21.5 billion net income, eclipsing the combined revenue of major companies like Adobe over the past year.

Nevertheless, the question of whether to follow Buffett’s lead is indeed complex. Although Apple boasts a strong brand and business model, its recent revenue growth has been tepid. Currently, the company's growth stands at just 5% year-over-year, leading to discussions about whether its current valuation is justified.

Long-term investors may find that current valuations should not be a deterrent to holding Apple shares. The broader smartphone market is experiencing a downturn, which has impacted Apple's substantial reliance on iPhone sales—making up 45% of its total revenue. The company is actively working to rejuvenate sales strategies and to shorten the product upgrade cycles.

As Buffett highlighted, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." If you believe Apple is a wonderful company—despite current challenges—it could still be a worthwhile investment for the future.

Apple, Berkshire, Buffett