Stocks have pulled back in the past month, as interest rates and inflation continue to dog the market. The AI excitement that gripped investors earlier in the year has abated somewhat, leading to recent pullbacks in stocks like Nvidia and Microsoft.
Apple (NASDAQ: AAPL) has struggled to make an impact with investors because the company has lagged behind its competitors in launching AI-powered products. That means the iPhone is still Apple’s main focus, and the company has suffered multiple quarters of lagging iPhone sales, especially in China.
Through the years, long-time Apple investor Warren Buffett has held onto his substantial AAPL stake and praised the company’s leadership and strong competitive moat. Apple stock has anchored the portfolio of Buffett’s firm, Berkshire Hathaway (NYSE: BRK.B), but Buffett appears to have dimmed somewhat on the valuation.
The billionaire recently sold Apple shares worth $76 billion. While Apple is still Berkshire’s largest holding, the selloff means the tech giant now accounts for 30% of the firm’s equity portfolio, down from closer to 50% last quarter. Buffett also made news with his hefty selloff of Bank of America, leaving investors to wonder: what stock does Buffett like more than Apple?
Why Did Warren Buffett Sell Apple Stock?
Apple hasn’t had a banner year but the timing of Buffett’s selloff might seem perplexing. AAPL has been on a positive trajectory, and it has even recovered from a slight dip after the company’s Q3 earnings call.
Apple beat revenue and earnings expectations for the past four quarters, and the stock is up over 16% year-to-date. Q2 revenue of $85.78 billion was 5% higher year-over-year, and it also beat analysts’ expectations of $84.53 billion by 1.66%.
The company set an all-time high in services revenue in the quarter, but perhaps Buffett was concerned about Apple’s declining iPhone revenue. iPhone sales were down 1% year-over-year, a consistent trend for the company. Still, second-quarter iPhone revenue of $39.3 billion beat the analysts estimated $38.81 billion.
Another concern is that Apple sales declined 6% to $14.72 billion in China, as the Chinese government has sought to steer its citizens to local competitors like Huawei.
Despite those issues, the company earned net income of $21.45 billion, which was a 7.88% increase over last year, and diluted earnings per share worked out to $1.40. That was 4.36% better than the $1.35 that analysts expected.
One reason cited by Buffett for a prior Q1 sale of Apple stock is that he believes tax rates are likely to rise in the future and the net cash to Berkshire now is favorable versus selling in the future.
What Stocks Is Warren Buffett Buying?
Despite the sales slump, there is the potential that Apple could move beyond its iPhone dependency soon. The company released a new version of the iPad in Q2, and sales were up 24% year-over-year, half of which were to first-time buyers. Apple now has 2.2 billion active devices and 1 billion paid subscriptions.
Among the most anticipated products is Apple Intelligence service, which will finally bring AI integration into Apple’s strong ecosystem. Because Apple Intelligence is scheduled for a fall launch, investors might be stymied by Buffett’s decision to sell Apple now.
However, it could just be that Buffett prefers another stock over Apple: Berkshire Hathaway. After all, his own company’s stock has outperformed Apple with a nearly 21% 12-month gain compared to AAPL’s 16.5% climb.
Why is Warren Buffett Buying Berkshire Hathaway Stock?
Warren Buffett has bought back over $5 billion in Berkshire shares over the past three quarters alone, so it’s clear he feels the stock is still undervalued relative to its future potential.
The Q2 stock selloff means Berkshire now has a massive cash stockpile of $276.9 billion, and Buffett’s stock sales and cash position could be interpreted as a sign that Buffett doesn’t believe in the market.
Buffett has often lamented the lack of enticing investment options in the market, but he has continued to find Berkshire stock attractive, and for good reason. Because the investment firm’s net income can vary wildly based on stock market volatility, Buffett has urged investors to consider the firm’s operating earnings to be a gauge of Berkshire’s success.
Operating earnings include the results of the firm’s wholly owned subsidiaries like insurance provider GEICO, and in Q2, Berkshire had operating earnings of $11.6 billion, up roughly 15% from $10 billion year-over-year.
What Stocks Are In Berkshire Hathaway’s Portfolio?
Though the firm owns railroads and energy companies in addition to GEICO, Berkshire Hathaway is still largely an investment firm. That means buying a share of BRK.A or BRK.B gives investors a share of Berkshire’s highly successful portfolio.
After Buffett’s Q2 trimming, Apple makes up 30% of Berkshire’s equity holdings, followed by Bank of America that represents 12%. However, Berkshire has sold Bank of America at a near-daily clip, including a recent sale of 19.2 million BAC shares.
That selloff may well jeopardize Bank of America’s position as Berkshire’s second-largest holding and push American Express, which currently comprises 10.41% of Berkshire’s portfolio, into the second-place position.
After American Express is longtime Buffett favorite Coca-Cola, which accounts for 7.38% of the firm’s holdings. Berkshire also trimmed 3.11 million shares of its fifth-largest holding, Chevron, in Q2.
Buffett still believes in the oil and gas industry, however, because one of the stocks he has continued to buy is Occidental Petroleum. In fact, Berkshire bought 7.26 million shares of the company in Q2. Occidental is now the sixth largest Berkshire holding, accounting for 4.62% of the firm’s portfolio.
Why Is Warren Buffett’s Number One Stock?
Warren Buffett has spent $78 billion buying back shares of Berkshire Hathaway in recent years, making it his number one stock purchase.
The firm’s unique portfolio makes Berkshire a compelling alternative to ETFs that are increasingly focused on technology stocks. Berkshire’s move to reduce its Apple stake could be viewed as a healthy move to reduce the firm’s investment concentration on a single company.
Buffett has plenty of justification to bet on Berkshire Hathaway–the stock has outperformed the S&P 500 with a 1698% gain since 1996, compared to the index’s 613% return over the period.
The timing of the Apple selloff might puzzle investors who believe the company is just beginning to leverage AI and move beyond the iPhone. Though time will tell on the AAPL trade’s timing, Buffett was wise to buy Apple when he did. Perhaps he is just as wise to sell.
#1 Stock For The Next 7 Days
When Financhill publishes its #1 stock, listen up. After all, the #1 stock is the cream of the crop, even when markets crash.
Financhill just revealed its top stock for investors right now... so there's no better time to claim your slice of the pie.
See The #1 Stock Now >>The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.