Why Did Warren Buffett Reduce Apple's Stake?
What to Know:
Warren Buffett recently sold a large stake in Apple $Apple(AAPL)$ in the first quarter of 2024.
His Apple stake decreased from 906 million shares (as of the end of December 2023) to approximately 790 million shares (as of the end of March 2024), representing a decrease of nearly 13% in Apple stake.
Despite the reduction, Apple remained Berkshire's largest holding as of the end of March 2024, and Buffett stated that Apple would likely remain Berkshire's largest holding at year-end.
Reason for Selling:
Buffett sold Apple to mitigate a potentially higher tax bill, as he believes the US will increase taxes to fund the growing US fiscal deficit.
Conclusion:
I don't believe Warren Buffett's decision was solely based on taxation reasons, as he did not divest other large holdings such as ExxonMobil, Coca-Cola, Bank of America, and American Express during the same period.
I speculate that Warren Buffett may hold a negative view on Apple and is concerned that a large stake reduction could significantly depress Apple's stock price, thus prompting him to divest slowly.
Warren Buffett's selling of Apple stock likely prompted Apple to announce a $110 Billion Stock Buyback Plan to support the share price.
We still maintain a long-term constructive view on Apple due to the upside catalysts mentioned below.
Currently, the 12-month Bloomberg analyst consensus target price for Apple is $202.62, representing an upside potential of 9.8% relative to yesterday’s closing price of $184.57.
Upside Catalyst:
Strong ecosystem to offset negative growth in any particular segment
Most investors have factored in lackluster iPhone sales.
Slower iPhone sales in China may be offset by stronger sales in emerging markets.
Apple recently unveiled the new iPad Pro powered by the M4 AI Chip and may soon introduce an AI-powered smartphone.
Apple is poised to reveal 'Big AI Plans' in the near future.
With a current PE ratio of 28.7x, Apple ranks as the third cheapest among the Magnificent Seven stocks. We anticipate that Apple's PE ratio will expand once it announces its AI plan.
Technical Analysis: Apple stock has successfully broken above the Fibonacci 141.4% level at $177.06, suggesting that it may challenge the next Fibonacci level at 161.8% at $197.69.
Source: Bloomberg, 9 May 2024
Source: Tradingview, 9 May 2024
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