No doubt, it is sacrilegious for a Value investor to be critical of Warren Buffett! However, the disclosure over the weekend that Berkshire Hathaway had dumped half of its ownership in Apple was cited as a major reason for the equity markets to have headed south in Monday’s trading.
Now, I would have preferred that the Oracle of Omaha maintained or added to his stake in Cupertino’s finest, but lost in the sensationalistic media headlines was that AAPL today trades well above the price that Buffett fetched for his supposedly well-timed sale. And what a sale it was as Berkshire parted with 394,060,888 shares during the second quarter!
Believe it or not, Apple’s average closing price in Q2 was $186.49, which is well below the $209.27 at which the stock closed on August 5. If I assume that average price for Berkshire’s sales, the paper losses, subject of course to market fluctuation, would be $22.78 per share…or nearly $9 billion!
I can’t find any precise information on what Mr. Buffett actually fetched for the sale, but the Berkshire 10-Q shows that all equity sales, Apple or otherwise, in Q2 fetched $77.1 billion. Now Apple was not the only stock sold, but even if it were the sole name parted with, the average sale price would have been $195.66, meaning $5.3 billion would have been left on the table!
STILL A MONSTER HOLDING IN THE BUFFETT PORTFOLIO
Many are speculating that the Oracle has continued to sell AAPL in Q3, but Berkshire still held 395,397,562 shares as of June 30. Those shares would today be worth $82.7 billion, a massive chunk of change even for Mr. Buffett.
Certainly, I can’t blame him for taking some money off the table as my team and I have done so on numerous occasions as well, but Apple remains a favored holding, and not just because my personal cost basis is 25.46 cents per share.
Here is my latest take on the holding…
Apple earned $1.40 per share in its latest quarter (vs. 1.35 est.), up 11% year-over-year, as the iPhone maker reported a record comparable quarter revenue of $85.8 billion, a 5% year-over-year increase despite a 230-basis-point negative impact from foreign exchange rates. This growth was broad-based across markets, with Products revenue climbing 2% to $61.6 billion, driven by the new iPad Pro and iPad Air launches. Services revenue also hit an all-time record of $24.2 billion, up 14% year-over-year, driven by record performance in both developed and emerging markets. Apple’s gross margin was 46.3%, near the high end of its guidance range, with product margins affected by mix and cost savings from a shift towards services.
iPhone revenue was $39.3 billion, down 1% year-over-year but showing growth on a constant currency basis, with significant June quarter records in various countries and the iPhone installed base reaching a new all-time high. Mac revenue rose 2% to $7 billion, propelled by the MacBook Air with the M3 chip. iPad revenue surged 24% to $7.2 billion, driven by the new iPad Pro and iPad Air, with the installed base at an all-time high. Wearables, Home and Accessories revenue was $8.1 billion, a 2% year-over-year decline, with the Apple Watch installed base reaching a new high, and Services grew paid subscriptions to over one billion.
CEO Tim Cook said, “During the quarter, we were excited to announce incredible updates to our software platforms at our Worldwide Developers Conference, including Apple Intelligence, a breakthrough personal intelligence system that puts powerful, private generative AI models at the core of iPhone, iPad, and Mac. We very much look forward to sharing these tools with our users, and we continue to invest significantly in the innovations that will enrich our customers’ lives, while leading with the values that drive our work.”
CFO Luca Maestri added, “During the quarter, our record business performance generated EPS growth of 11 percent and nearly $29 billion in operating cash flow, allowing us to return over $32 billion to shareholders. We are also very pleased that our installed base of active devices reached a new all-time high in all geographic segments, thanks to very high levels of customer satisfaction and loyalty.”
I have long appreciated the integrated nature of Apple’s hardware, software and services that contribute to a premium experience that keeps users in its ecosystem. Still, I concede that it is becoming harder to hold tight, given the forward P/E ratio of 30 and an elevated weighting in most of our strategies. I have adjusted our Target Price higher to $244 but readers should not be surprised if my team and I choose to ring the register soon on a bit more of our stake.
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