Warren Buffett’s conglomerate Berkshire Hathaway ($BRK.B) may have shocked some over the weekend when it was disclosed that it had cut its massive Apple (AAPL) stake in half as it released its latest round of quarterly earnings results. With a massive cash mountain that’s since grown to be even more towering, there are many unanswered questions when it comes to Berkshire, Apple, and the road ahead. Despite the giant question marks, I remain bullish on Berkshire Hathaway stock.
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As you’d expect, the news sent shares of Berkshire and Apple nosediving on Monday (down 3.4% and 4.8%, respectively), a move exacerbated by Monday’s blow-up in the Japanese stock market. Despite the volatility spike, investors likely have nothing to panic over as Berkshire raises more cash that it’ll likely deploy once it finally sees better opportunities.
Berkshire Raises Even More Cash after Historic Apple Share Sale
Berkshire’s swelling cash pile (currently at a record $277 billion) and continued prudence make shares an even better defensive bet, in my humble opinion. To some, Berkshire’s record pile of cash is a “problem.” Sure, not being able to find opportunities to score a solid return relative to the risk is a problem.
However, I’m sure you’d agree that it’s far less of a problem than being caught fully invested in the face of a painful stock market correction or crash without enough dry powder to take advantage of the bargains to be had on the way down.
In any case, Berkshire already had ample financial firepower before it sold off its latest chunk of AAPL shares. Further, some investors may be inclined to wonder if the magnitude of the recent Apple share sale is a red flag that the broader stock market is looking at a serious drawdown going into year’s end. Though it’s impossible to tell what Buffett is thinking in real-time, I think many investors are overreacting (maybe even panicking) in the heat of the moment.
The latest slate of tech earnings has been worrisome, as has negative momentum in the Nasdaq 100 (NDX) and the latest wave of fear rippling from Japan. And while the latest round of AAPL stock selling may be far more sizeable than many may have expected, the Oracle of Omaha already had a chance to address the Apple questions during Berkshire’s 2024 shareholder meeting.
What to Make of the Apple Stock Sale
Warren Buffett (and the late Charlie Munger) have had nothing but good things to say about the iPhone maker. Heck, at the latest Berkshire Hathaway annual shareholders meeting, Buffett went as far as to say that Apple “is an even better business” than some of the other “wonderful” holdings in the Berkshire stock portfolio, as Apple CEO Tim Cook watched the meeting from special seats close to the front.
Though the latest round of selling is a heck of a lot larger than the first sale made earlier this year (back then, Berkshire trimmed just 13% of its Apple stake), investors probably shouldn’t treat the paring as a sign that Apple is no longer a wonderful business. They shouldn’t assume that its Apple Intelligence product will fail to hit the mark or that the market is dancing on a knife’s edge. In fact, Buffett mentioned tax considerations as a reason for taking profits on a portion of Berkshire’s Apple stake.
Some may be inclined to think it’s more than just taxes, given how massive the latest round of selling has been. However, I’d argue that the taxation reasoning still makes sense.
With recent chatter from the Biden administration pointing to the potential for capital gains taxes to go up in the U.S. (to a proposed 44.6% rate, which is even higher than Canada’s recent hike to 33%) for the wealthy, taking profits well ahead of time seems smart. Should Kamala Harris win the U.S. presidential election, the window to book gains at the old rate may close, perhaps sooner than expected.
Berkshire Can Have Its Cake and Eat It, Too
In any case, there’s nothing stopping Berkshire from having their cake and eating it, too, by selling Apple here and buying back at a later date. By selling before any capital gains tax hike has a remote chance of happening, Buffett won’t have to risk taking as large a hit to the chin by selling later.
Further, nothing is stopping Berkshire from buying back into Apple at a later date, perhaps after the stock trades at more reasonable valuations. After the Apple Intelligence-driven rally, AAPL stock traded at close to 34 times trailing price-to-earnings (P/E), the highest the multiple had been in recent memory. Indeed, Apple had become historically expensive, as the AI hype drove shares above $230 per share.
Even with the latest round of selling, Apple remains the largest holding in the Berkshire stock portfolio, comprising around 28.4% of it at the time of writing. That’s still a massive stake that allows Berkshire to continue riding the firm higher as it moves into the age of generative AI.
Arguably, having one stock comprise nearly 30% of the portfolio is still excessive, given that Berkshire shareholders have expressed their concerns to Buffett at previous shareholder meetings over the company’s heavy concentration in Apple.
Is Berkshire Stock a Buy, According to Analysts?
On TipRanks, BRK.B stock comes in as a Moderate Buy. Out of three analyst ratings, there are two Buys and one Hold recommendation. The average BRK.B stock price target is $462.33, implying upside potential of 11.8%. Analyst price targets range from a low of $450.00 per share to a high of $472.00 per share.
See more BRK.B analyst ratings
The Takeaway
Berkshire Hathaway may have alarmed some with the magnitude of its latest Apple stake paring. Despite the size of the sales, I view Buffett’s previous taxation explanation as still sound.
Additionally, with AAPL stock still trading at the high end of its range, I’d argue it’s only prudent to play with the house’s money at this juncture. Finally, such a big sale also reduces Berkshire’s single-stock risk, something that had been brought up by Berkshire shareholders in the past.
So, if you’re not overinvested in Apple, have no shareholders to appease, and won’t be affected by changes to tax policy, I’d argue it makes very little sense to follow Buffett and Berkshire by dumping AAPL stock, especially now that a chunk of the Warren Buffett premium was wiped off AAPL stock during Monday’s session. If you really want to follow Buffett’s style, buying Berkshire stock on the dip seems like a far better idea.
