We recently compiled a list of the 7 Best Warren Buffett Dividend Stocks According to Short Sellers. In this article, we are going to take a look at where Apple Inc. (NASDAQ:AAPL) stands against the other Warren Buffett dividend stocks.
Although the financial world is often seen as serious and analytical, short selling introduces an element of excitement and complexity to market dynamics. Short selling is a strategy where investors borrow shares of a stock, anticipating that the market price will drop by the time they need to purchase the shares to return them. While many short sellers have scaled back since the meme stock frenzy began, the strategy of betting against stocks remains in practice. Short sellers saw strong gains in the second quarter of this year, successfully betting against stocks despite the broader market’s upward trend. Data from S3 Partners LLC showed they earned $10 billion in paper profits during the quarter. These gains, driven by sectors like industrials, healthcare, and financials, helped offset a $15.7 billion mark-to-market loss in the technology sector.
The fact that short sellers were able to profit while the market was rising suggests that investors are concentrating on a handful of large-cap tech stocks amid an uncertain economic environment, leaving vulnerabilities in other sectors. During the quarter ending June 28, the broader market gained roughly 4%. Meanwhile, the tech-focused Nasdaq 100 Index saw a 7.8% gain over the same period.
Also read: 10 Worst Booming Stocks to Buy According to Short Sellers
It’s clear that short sellers capitalize on overlooked or troubled areas of the market. Last year, the turmoil in regional banks attracted short sellers, who stirred controversy by examining lenders’ balance sheets for vulnerabilities linked to rising interest rates and betting against their stocks. In 2023, while the broader market rallied, this sector became a key area of success for these traders. The volatility that affected regional bank stocks earlier this year again generated substantial paper profits for short sellers, echoing the gains they made during last year’s upheaval in the sector. Now analysts are viewing short sellers in a completely new perspective. Carson Block, the founder of Muddy Waters Research, is convinced that markets need short sellers more than ever. However, he notes that a persistent stock rally and new regulatory challenges are creating difficulties for his bearish colleagues, who are struggling to secure capital. Here are some comments from the investor:
“It’s easy to demonize short sellers as part of a populist message and somehow call us the suits. The market needs short sellers more than ever given the amount of games that are being played, but if the long-side doesn’t care, this can continue — until it doesn’t.”
Alongside Block, numerous respected investors and experts have emphasized that short selling plays a crucial role in public markets. It helps enhance price accuracy, ensures better capital allocation, prevents financial bubbles, and uncovers fraud. In 2006, during Berkshire Hathaway‘s annual shareholder meeting, Warren Buffett highlighted that financially strong companies could benefit from short sellers, as they eventually have to buy back the stock. He believes short sellers often uncover wrongdoing or suspicious activities. Buffett remarked that there is nothing inherently wrong with short selling, noting that in many cases where there has been significant short interest, the companies involved were later exposed as fraudulent or engaging in questionable practices. With this, we will take a look at some of the best Warren Buffett dividend stocks according to short sellers.
Our Methodology:
For this list, we first scanned Berkshire Hathaway’s 13F portfolio as of Q2 2024 and identified dividend stocks from the list. From that list, we shortlisted dividend companies with the lowest percentage of shares outstanding that were sold short as of September 15 and ranked them in descending order of the stocks’ short interest.
We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 912 funds as of Q2 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A wide view of an Apple store, showing the range of products the company offers.
Apple Inc. (NASDAQ:AAPL)
Short % of Shares Outstanding: 0.89%
In the second quarter of 2024, short sellers faced significant losses, losing billions of dollars by betting against major, well-known stocks like Apple Inc. (NASDAQ:AAPL). It was among the three least profitable short positions during this period, as its stock price jumped by 23% in Q2 2024. According to analysts, weak iPhone sales and regulatory challenges in the EU and the USA may be affecting sentiment, but the influence of market perceptions on interest rate trends should not be overlooked either.
In fiscal Q3 2024, Apple Inc. (NASDAQ:AAPL) reported a 14.5% QoQ decline in its iPhone sales at over $39.2 billion. The company’s overall revenue for the quarter came in at $85.7 billion, which saw a 5% hike from the same period last year. During the quarter, the company was pleased to reveal significant updates to its software platforms at the Worldwide Developers Conference. Among these updates was Apple Intelligence, a revolutionary personal intelligence system that integrates advanced, private generative AI models into iPhone, iPad, and Mac devices. Despite its declining iPhone sales, analysts are still optimistic about the company. Baron Funds also discussed this in its Q2 2024 investor letter. Here is what the firm has to say:
“The Fund’s chief relative detractor was Apple Inc. (NASDAQ:AAPL), even though it was a meaningful contributor to absolute performance, as we added to our Apple position significantly during the period. We bought Apple well, but in 20/20 hindsight we didn’t buy enough. Because Apple has an oversized weight in the Benchmark (its average weight was 15.7% for the period), when Apple’s stock outperforms (it appreciated 23.0%), it has generally been a headwind to relative performance. Our Apple underweight accounted for 33% of our relative underperformance for the period.
This quarter we increased the size of our position in Apple Inc., a leading technology company known for its innovative consumer electronics products like the iPhone, MacBook, iPad, and Apple Watch. Apple is a leader across its categories and geographies, with a growing installed base that now exceeds 2 billion devices globally. The company’s attached services – including the App Store, iCloud, Apple TV+, Apple Music, and Apple Pay – provide a higher margin, recurring revenue stream that both enhances the value proposition for its hardware products and improves the financial profile. Apple now has well over 1 billion subscribers paying for these services, more than double the number it had just 4 years ago. The increasing services mix has led to healthy operating margin improvement, providing more free cash flow for Apple to reinvest in the business and to distribute to shareholders. Throughout its 48-year history, Apple has successfully navigated and capitalized on major technological shifts, from PCs to mobile to cloud computing. We believe the company’s leading brand and device ecosystem position it to do equally well in the AI age, and this was the driver of our decision to re-invest. “Apple Intelligence” – the AI strategy unveiled at Apple’s recent Worldwide Developer Conference – leverages on-device AI and integrations with tools like ChatGPT to enhance user experiences across its ecosystem. The AI suite enables users to create new images, summarize and generate text, and use Siri to perform actions across their mobile applications, all while maintaining user privacy and security. We think Apple Intelligence can drive accelerated product upgrade cycles and higher demand for Apple services. The combination of growth re-acceleration, increasing services contribution, and thoughtful capital allocation should continue driving long-term shareholder value.”
Apple Inc. (NASDAQ:AAPL) also reported a strong cash position. The company generated over $29 billion in operating cash flow and returned $32 billion to shareholders through dividends and share repurchases during the quarter. Moreover, the company has been growing its dividends consistently for the past 12 years, which makes AAPL one of the best Warren Buffett dividend stocks. Its quarterly dividend currently sits at $0.25 per share for a dividend yield of 0.45%, as of September 15.
Apple Inc. (NASDAQ:AAPL) garnered a lot of attention from elite money managers during the second quarter of 2024. Insider Monkey’s database of Q2 2024 indicated that 184 hedge funds held stakes in the company, growing from 150 in the previous quarter. The consolidated value of these stakes is over $124 billion.
Overall AAPL ranks 3rd on our list of the best Warren Buffett dividend stocks to buy. While we acknowledge the potential for AAPL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AAPL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
