Warren Buffett, CEO of Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B)bears responsibility for “major investment decisions and all major capital allocation decisions” made by the company, according to financial documents filed with the Securities and Exchange Commission.
With this in mind, Berkshire sold 116 million shares of Apple (NASDAQ:AAPL) during the March quarter, reducing its stake by 13%. Apple still accounts for 40% of its $336 billion portfolio, but the company has now reduced that position in two consecutive quarters. Meanwhile, Buffett bought another mega-cap stock that he believes will outperform the S&P500 (INDEXSNP: ^GSPC) hint.
Keep reading to find out more.
Apple: the stocks that Warren Buffett sold
Apple benefits from brand authority and pricing power. Its ecosystem of attractive hardware, proprietary software, and integrated services creates a user experience that people will pay a premium for. In fact, 80% of iPhones cost more than $800, while only 22% of Samsung Smartphones (Android) are in the same range, according to the International Data Corporation (IDC).
Apple is particularly present in the smartphone market. The iPhone accounted for 20% of smartphone shipments by volume last year, up from 14% in 2019, according to IDC. But Apple also has a strong presence in the tablet, personal computer, and smartwatch markets, among other consumer electronics verticals. In total, its installed base exceeds 2.2 billion active devices.
Apple monetizes its installed base with adjacent services. This includes iCloud storage fees, App Store downloads and subscription products like Apple TV+, as well as advertising and financial services like Apple Pay. It’s important to note that Apple’s biggest growth prospects lie in services, as services revenue is growing faster than hardware and services generate higher margins than hardware.
Apple reported disappointing financial results for the second quarter of fiscal 2024 (ended March 30). Revenue fell 4% to $90.8 billion as a 10% decline in iPhone sales was offset by a 14% increase in services sales. In the meantime, GAAP net income fell 2% to $23.6 billion, although the company managed to increase earnings per share through share buybacks.
The problem with Apple is valuation. Wall Street expects earnings per share to grow 10.6% annually over the next three to five years. If this figure is divided by its current price-to-earnings ratio of 33.1, the result is a high price-to-earnings-to-growth (PEG) ratio of 3.1. This is a significant premium over the three-year average of 2.4, which may explain why Buffett reduced Berkshire’s stake.
Berkshire Hathaway: the stock that Warren Buffett bought
The mega-cap stock Buffett bought in the first quarter was none other than Berkshire Hathaway. Specifically, it spent $2.6 billion on stock buybacks during the first quarter of 2024, building on $9.2 billion in share buybacks in 2023. Buffett has now repurchased shares of Berkshire every quarter since the fourth quarter of 2018, representing…
Discover more from The Times Of Update
Subscribe to get the latest posts sent to your email.
