We recently compiled a list titled Buffett Stock Portfolio: Top 10 Stock Picks for 2024. In this article, we will look at where Apple Inc. (NASDAQ:AAPL) ranks among the top 10 stocks in Buffet’s portfolio.
Warren Buffet is one of the most accomplished investors in the history of Wall Street. According to Bloomberg’s Billionaire Index 2024, the Oracle of Omaha has a net worth of $143 billion, making him the ninth richest person in the world. His wealth would have been much more had he not decided to donate most of his vast fortune to charities. Since 2006, Buffet has donated over $55 billion to various charitable organizations, with a majority of the gifts going to the Bill & Melinda Gates Foundation.
Buffet rose to prominence in 1965, after transitioning his investment firm into a conglomerate that held stakes in companies belonging to a broad range of industries. Between then and 2023, his firm earned average annual returns of 19.8%, outperforming most stock indices that delivered returns around the 10 percent mark during this period. However, this year, Buffet seems to be in a defensive mode and is currently in the news for his sell-off spree, significantly reducing his investments in several notable companies.
There have been mixed opinions about Buffet hunkering down on stocks. Edward Jones analyst, Jim Shanahan, said that the actions make him ‘concerned’ about Buffet’s outlook for the stock market and the American economy. In contrast, Daniel Ives, a Wedbush analyst, is less worried and believes that despite the selling spree, Berkshire still holds the top positions in those stocks by large margins, which should not be viewed as a ‘smoke signal for bad news ahead’.
So what will Warren Buffet do with all that cash? Andrew Bary, the associate editor at Barron’s, recently stated that the billionaire has been on the look for a major acquisition for some while now, which has so far proven elusive. He believes the Berkshire CEO may just hold the cash for some while, earn interest on Treasury Bills, and wait for potential opportunities to grab in the stock market.
Another factor that has likely contributed to Warren Buffet dumping stake in some of his top stocks is the speculation around the increase in capital gains tax. The debate on the tax rate has been on for some time now and has even become a talking point in the run-up to the presidential elections. Vice President, Kamala Harris, during a speech in New Hampshire this month, proposed to raise the long-term capital gains tax for wealthy individuals to 28%.
The current tax rate is 21% when a gain is realized. Massive gains over the long term result in a large tax. Warren Buffet invested in stocks he is currently selling a long time ago, and hence, is sitting on handsome gains. The rationale behind selling these stocks could be to capitalize on the gains as much as possible on the current low tax rate, instead of paying hefty taxes later if the rate were to be increased.
Methodology
We scanned Warren Buffet’s portfolio, as of June 30, 2024, and picked the top 10 stocks according to their stake value. The figures were sourced from the Insider Monkey Database.
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).
Apple Inc. (NASDAQ:AAPL)
Stake Value as of Q2 2024: $84,248,000,000
Apple Inc. (NASDAQ:AAPL) has been a cornerstone of Warren Buffet’s portfolio for the last several years. However, Berkshire Hathaway’s recent filings revealed it had sold 389,368,450 Apple shares during the second quarter of 2024, representing nearly half of its stake in the iPhone maker.
Analysts believe that while there may be various potential reasons behind the sell-off, it is likely that Warren wanted to lock in gains at a lower tax rate, amid speculations of the capital gains being increased from 21% to 28%. Vltava Fund also believes the decision was influenced by taxation. Here is what the fund stated in its Q3 2024 investor letter:
You probably have not missed the news that Warren Buffett has already sold half the stock from his largest public markets investment, Apple Inc. (NASDAQ:AAPL). It was a phenomenal investment for Berkshire. Over the course of seven years or so, it brought a profit of well over USD 100 billion. Apple comprised a very large position within Berkshire’s public portfolio, and this was the reason we avoided Apple stock outright during that time. We considered our exposure to Apple through our holdings of Berkshire stock to be sufficient, and we ended up making a lot of money on it. There has been a great deal of speculation in the market about what Buffett’s sale of Apple signals regarding his view of the stock market. I think the reason for the sale is much simpler. Buffett probably considers Apple stock so expensive that he prefers to cash in at 20% less (after all, Berkshire must pay tax on its profits). He started selling in the first quarter of the year. When I was in Omaha for the general meeting in May, Buffett said he was still selling, and I expect he continued to do so in the third quarter. I have to say that, as a Berkshire shareholder, I am happy about the Apple sale. I think Berkshire’s management will find a better use for this money, as they always have in the past. It is quite likely that they already have a very specific idea about this. If that takes two or three years, it does not matter at all. This is not a race and, in the meantime, the risk of holding Berkshire Hathaway stock itself has been greatly reduced.
Despite the downsizing, Apple remains the top pick in the Buffet stock portfolio, with a holding value of over $84 billion, accounting for 30.09% of the portfolio. Moreover, according to Insider Monkey’s database, 184 hedge funds have investments in Apple Inc. (NASDAQ:AAPL) as of Q2 2024, making it one of the best stocks to buy now.
The recently concluded third quarter of FY24 was one of the best quarters for Apple in a long while, during which it reported a June quarter record revenue of $85.8 billion, representing a 5% year-over-year increase. Revenue from products grew 2% from last year, driven by the launch of iPad Pro and iPad Air, to reach $61.8 billion. Services revenue also reached an all-time high of $24.2 billion, registering a 14% spike from last year. Gross margin stood at 46.3%, which was within the higher range of the guidance. EPS was recorded at $1.40, beating analysts expectations of $1.35 per share.
The Cupertino-based tech giant reported $39.3 billion from iPhone sales in Q3, which accounted for nearly half of Apple’s overall revenue for the quarter. The figure was down 1% year-over-year and is attributed to the 6.5% drop in sales in China, where the company faces fierce competition from local manufacturers like Huawei. While the dip in iPhone revenue has caused some investor concern, most remain bullish on the stock after the incorporation of artificial intelligence in the new iPhone 16.
There is consensus among Wall Street analysts on the stock’s Buy rating with a share price upside potential of 8.58%.
Overall, AAPL ranks 1st among the Buffett Stock Portfolio: Top 10 Stock Picks for 2024. While we acknowledge the potential of AAPL as an investment, our conviction lies in the belief that 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 on Insider Monkey.
