Few investors and companies have as much of a microscope on their moves as Warren Buffett and Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B). But I guess that’s what happens when your investments over the decades have built you a net worth of more than $145 billion and a market cap pushing the $1 trillion mark.
One move in particular that has drawn a lot of attention from investors is Berkshire Hathaway’s decision to sell a lot of its Apple (NASDAQ: AAPL) shares.
In the first half of 2024, Berkshire Hathaway unloaded about 505 million of its Apple shares, selling 115 million in the first quarter and 390 million in the second. That brought Berkshire Hathaway’s share count down to 400 million, representing 29.4% of its stock portfolio.
Apple is still Berkshire Hathaway’s largest holding by a solid margin. Its second-largest holding is American Express, which accounted for 13.1% of the stock portfolio. Bank of America (10.3%), Coca-Cola (8.7%), and Chevron (5.7%) round out its top five holdings.
Considering how much Berkshire Hathaway has trimmed its Apple stake, many investors wonder if they should take this as a warning of things to come and follow Buffett and Berkshire Hathaway’s lead. If you ask me, I believe the answer is no, and here’s why.
Why would Berkshire Hathaway sell so many Apple shares?
A few reasons make sense for the recent sell-off. To begin with, Buffett and Berkshire Hathaway likely believe cash is king right now, given the higher interest rates and what many believe to be high stock valuations.
Apple likely falls in the latter category. It’s trading at 31 times its projected earnings, well above its average during the past five years and much more than when Berkshire Hathaway began building its stake in 2016.
AAPL PE Ratio (Forward) data by YCharts.
Another reason could be that Buffett and Berkshire Hathaway want to lock in some profits now before a potential increase in the capital gains tax rate (a move proposed by presidential candidate Vice President Kamala Harris).
When you’re selling billions of dollars’ worth of shares, a few percentage-point differences in capital gains taxes can add up to a lot of money. By locking in gains now at today’s relatively low tax rate (21% for corporations), Buffett and Berkshire Hathaway could be saving itself and its investors millions, if not billions, of dollars down the road.
Should investors follow Buffett and Berkshire Hathaway’s moves?
If you’re already invested in Apple, I don’t believe there’s a reason to sell any of your shares right now. The tax reason makes sense for a corporation that owns hundreds of millions of shares, but the benefit won’t be the same for your everyday investor.
Apple is still a world-class company that commands billions of people’s attention (and money) globally. In its latest quarter (ended June 29), Apple generated $85.8 billion in revenue. Its $21.5 billion in net income is more than Adobe‘s revenue from its past four quarters combined. Needless to say, Apple is still a cash cow.
However, Apple’s recent revenue growth (or lack thereof) and valuation make answering the “Should you follow Buffett?” question much harder to answer.
AAPL Operating Revenue (Quarterly YoY Growth) data by YCharts.
Apple isn’t valued like a company that’s only seeing 5% year-over-year revenue growth. I still believe the company commands a premium price, but that’s surely something investors shouldn’t overlook.
If you’re in it for the long run, though, I don’t believe current valuations should be what stops you from investing in Apple. A slump in the overall smartphone market took its toll on Apple’s revenue (the iPhone is 45% of its total revenue), but it’s taking steps to revive sales and shorten the upgrade cycle.
Buffett once said: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” Whether you consider current prices “fair” is relative, but there’s no denying Apple is a wonderful business. Long-term investors should keep their eyes set on the future.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. American Express is an advertising partner of The Ascent, a Motley Fool company. Stefon Walters has positions in Apple. The Motley Fool has positions in and recommends Adobe, Apple, Bank of America, Berkshire Hathaway, and Chevron. The Motley Fool has a disclosure policy.