Anticipated Action: Buffett to Dispose of Entire Apple Shares Portfolio by 2025
Anticipated Action: Buffett to Dispose of Entire Apple Shares Portfolio by 2025
Apple (AAPL dropping 2.14%) has been one of Berkshire Hathaway's' (BRK.A decreasing 1.96%, BRK.B decreasing 1.99%) most prosperous investments. However, there comes a time to relinquish an investment, and I assume that Warren Buffett and his crew are prepared to do so in 2025.
But why are they letting go? After all, Buffett and his gang have been quite complimentary towards Apple CEO Tim Cook and the enterprise he's developed. Let's delve deeper and try to comprehend better.
Apple used to be a flawless Warren Buffett investment
Berkshire Hathaway initial invested in Apple stock during the first quarter of 2016. However, the business it acquired back then is a far cry from the current Apple. I'm not talking about what Apple manufactures or how it markets itself (although those have altered slightly). Instead, I'm talking about the stock's fundamentals.
Back in Q1 2016, Apple appeared like a typical Buffett investment. Apple was a large and expanding consumer brand, and its shares were unbelievably cheap, trading for only 10.6 times trailing earnings. This made Apple look like a value stock, and the Buffett purchase made perfect sense.
But that's not how Apple operates today. Since Q1 2016, Apple's revenue and earnings per share (EPS) have climbed 66% and 157%, respectively. Over the long term, stocks usually return around the level of their EPS rise, with one exception: multiple expansion.
Multiple expansion occurs when investors are willing to pay more for a stock than they once did. This is a crucial component of a value investing philosophy like Buffett's, as they buy something that's cheap and sell it when it's fully valued.
Since Q1 2016, Apple's stock has surged around 850% -- far beyond its revenue or EPS growth. Now, the stock trades for a hefty 41 times trailing earnings. Historically, that's a very high price tag for any company, and it has led many to believe that Apple has become either fully valued or overvalued.
As a result, I wouldn't be shocked if Buffett keeps offloading his position.
The stock isn't tempting right now
In Q3 2023, Berkshire owned approximately 916 million shares of Apple. It's been a constant seller since then, as Apple now only holds 300 million shares. Buffett and his crew have justified these sales as capturing tax gains in case the corporate tax rate increases from the current 21% level, but with President-elect Donald Trump in office, this is unlikely to happen.
However, investors shouldn't be surprised if Berkshire continues to sell Apple stock, as the investment thesis (at least for Buffett) has played out. Compared to other major tech stocks, Apple isn't very appealing right now. It's overpriced at 34 times forward earnings, and 2025 doesn't seem to be a particularly strong year.
Wall Street analysts predict 6% revenue growth this year, which is quite weak for the stock's current price. We'll find out more about Apple's trajectory once it reports its results from the first quarter of its fiscal 2025, ending around Dec. 31, as this will let investors know if the iPhone 16 has gained favor with consumers.
Regardless, numerous other tech companies are trading at cheaper price tags and growing faster, and they look like far more appealing investments than Apple right now. So, even if Buffett and his team halt selling Apple shares in 2025, investors should start looking for other investment opportunities than Apple.
Despite Apple's continued growth and strong performance, Berkshire Hathaway's decision to sell its shares might be attributed to the significant increase in the stock's price, now trading at a high multiple of 41 times trailing earnings. Given this price tag and the stock's weaker projected revenue growth of 6% in 2025, there are other potential investment opportunities with more attractive valuations and growth prospects that investors might want to consider, thus diversifying their portfolios.
Recognizing that Apple, once considered a value stock, has dramatically increased in value since Berkshire Hathaway's initial investment in Q1 2016, other financially sound companies with promising growth prospects might warrant further consideration for investors seeking to maximize their returns in the world of finance and investing.