Warren Buffett's Recent Apple Stock Sales: Should You Follow?

Apple's valuation and revenue growth aren't looking great right now, but its long-term prospects remain promising.

The investment decisions of Warren Buffett and Berkshire Hathaway are often intensely scrutinized, a consequence of Buffett's immense net worth exceeding $145 billion and his company's market valuation nearing $1 trillion.

One notable action that has caught the attention of many investors is Berkshire Hathaway's significant sale of Apple shares.

In the first half of 2024, Berkshire Hathaway sold approximately 505 million shares of Apple, including 115 million in the first quarter and 390 million in the second. This reduced their total number of shares to 400 million, which now makes up 29.4% of their stock portfolio.

Despite this cut, Apple continues to be the largest holding within Berkshire Hathaway's investment portfolio. The second largest is American Express, constituting 13.1% of the portfolio, followed by Bank of America (10.3%), Coca-Cola (8.7%), and Chevron (5.7%).

This substantial reduction in their Apple stake has led many investors to question whether they should heed Buffett's example and divest their own Apple shares. However, I believe the answer is no, and here’s why.

Reasons Behind Berkshire Hathaway’s Sale of Apple Shares

Several factors could explain the recent selling of Apple shares. Firstly, Buffett and his team may perceive that cash is more important at this moment, especially given rising interest rates and what many see as inflated stock valuations.

Apple likely falls into the high valuation category, trading at a projected earnings multiple of 31, significantly higher than its average over the past five years and noticeably increased since Berkshire Hathaway first purchased shares in 2016.

Another possible reason for the sales could relate to the intention to secure profits before a potential hike in capital gains tax, as proposed by certain political figures. For a large corporation like Berkshire Hathaway that holds hundreds of millions of shares, minor fluctuations in capital gains taxes can result in substantial savings. By selling now at the currently lower tax rate, they could save millions, if not billions, in tax liabilities down the line.

Should Investors Imitate Buffett and Berkshire Hathaway?

For those already invested in Apple, there seems to be no compelling reason to sell your shares. The tax implications that might drive a massive corporation to sell do not weigh the same for individual investors.

Apple remains a premier global company, attracting the attention and spending of billions. In the most recent quarter ending June 29, Apple reported a staggering $85.8 billion in revenue, with a net income of $21.5 billion—more than the total revenue generated by Adobe over the past four quarters combined. Clearly, Apple is a strong cash-generating entity.

Nevertheless, the question of whether to follow Buffett is trickier due to Apple's recent slowdown in revenue growth and high valuation. It’s hard to justify high valuations when the company only shows a 5% increase in year-over-year revenue growth. Although the company might still merit a premium in price, investors must evaluate this factor carefully.

If you are a long-term investor, current valuations should not deter you from investing in Apple. The current slump in the smartphone market has affected Apple’s revenue—given that iPhones account for 45% of total revenue—but the company is working to enhance sales and shorten upgrade cycles.

As Buffett wisely noted, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." Determining what you consider a “fair” price is subjective, yet there is no denying that Apple exemplifies a remarkable business. Long-term investors should focus on the bigger picture and future possibilities.

Buffett, Apple, Investing