Warren Buffett has been selling a lot of Apple (NASDAQ: AAPL) shares recently. Looking at Berkshire Hathaway’s second quarter earnings report, we can see that the billionaire investor sold around 50% of his stake in the iPhone maker in Q2.
I own Apple stock and it’s one of my largest portfolio holdings. Should I follow the investment guru and offload the shares too?
Buffett’s Apple trade
I’m not surprised Buffett’s been selling Apple shares. That’s because the stock – which has performed really well recently – had become an enormous position for him.
13F filings show that at the end of the first quarter, Buffett’s investment vehicle Berkshire Hathaway owned about $135bn worth of shares in the tech giant. That was nearly 50% of the whole portfolio.
Now, Buffett likes to make big bets on companies he’s bullish on. But having nearly 50% of your portfolio in one stock’s just not prudent.
If Apple shares were to fall 20% or more (which they have in the past), his portfolio could have taken a huge hit. So the position had become quite risky.
Even after the recent selling activity, Apple’s still a very large position for the stock market legend. Berkshire’s Q2 earnings report showed that his position at the end of June was worth about $84bn – around 30% of his portfolio.
So he’s still making a big bet on the tech giant. It’s still his largest position by a wide margin.
I’m not selling
As for my own portfolio, I don’t have any plans to sell my Apple shares. They remain a core holding for me. Sure, the shares are a little expensive after their recent jump. Currently, they trade on a forward-looking price-to-earnings (P/E) ratio of about 33. That multiple does look a little stretched to me, if I’m honest.
But I think Apple will be able to grow into this valuation in the near future.
One reason I say this is that the company’s on the cusp of a major product refresh cycle. Once the company releases new artificial intelligence (AI)-enabled iPhones, I expect to see consumers rushing to upgrade their old handsets (pushing up revenues and earnings).
Another reason is that the company’s buying back a ton of its own shares. Recently, it announced a $110bn buyback – the largest in corporate history. Buybacks tend to boost earnings per share over time. And higher earnings per share lead to a lower P/E ratio.
One other thing Apple has going for it is that it may not need to spend as much money on AI as some of the other tech giants. That’s because it ultimately offers the platform (the iPhone) that a lot of the other Big Tech companies (eg Meta Platforms) will be putting their products on to get to consumers.
Of course, there’s pressure on Apple to launch a new iPhone that’s really impressive. If the next version’s underwhelming, the company’s revenue and earnings growth could be sluggish and we could see share price weakness.
I’m optimistic the company will release a brilliant new product however. After all, it has a great track record when it comes to innovation.
This post was originally published on Motley Fool
