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Warren Buffett Is Selling Apple Stock and Buying Shiny Mega-Cap Stock Instead
Warren Buffett, CEO of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), is responsible for “major investment decisions and all major capital allocation decisions” made by the company, according to financial filings with the Securities and Exchange Commission.
With that in mind, Berkshire sold 116 million shares of Litter (NASDAQ: AAPL) in the March quarter, reducing its stake by 13%. Apple still accounts for 40% of its $336 billion portfolio, but the company has already reduced the position in two consecutive quarters. Meanwhile, Buffett bought another mega-cap stock that he believes will outperform S&P 500 (SNPINDEX: ^GSPC) index.
Keep reading to find out more.
Apple: The Stocks Warren Buffett Was Selling
Apple benefits from brand authority and pricing power. Its ecosystem of compelling hardware, proprietary software, and integrated services creates a user experience people will pay more for. In fact, 80% of iPhones cost over $800, while only 22% of Samsung Smartphones (Android) are in the same range, according to the International Data Corporation (IDC).
Apple has a particularly strong presence in the smartphone market. The iPhone accounted for 20% of smartphone shipments by volume last year, up from 14% in 2019, according to IDC. But Apple also has a strong presence in the tablet, personal computer and smartwatch markets, among other consumer electronics verticals. In total, its installed base exceeds 2.2 billion active devices.
Apple monetizes its installed base with adjacent services. This includes fees for iCloud storage, App Store downloads, and subscription products like Apple TV+, as well as financial and advertising services like Apple Pay. Importantly, Apple’s biggest growth prospects lie in services, because services revenues are growing faster than hardware revenues and services earn higher margins than hardware.
Apple reported disappointing financial results for the second quarter of fiscal 2024 (ended March 30). Revenue fell 4% to $90.8 billion due to a 10% decline in iPhone sales, offset by a 14% increase in services sales. About that, GAAP net income fell 2% to $23.6 billion, although the company was able to increase earnings per share with share buybacks.
The problem with Apple is valuation. Wall Street expects earnings per share to grow 10.6% annually over the next three to five years. If that number is divided by its current price-to-earnings ratio of 33.1, the result is a high price-to-earnings-to-growth (PEG) ratio of 3.1. This is a significant premium to the three-year average of 2.4, which may explain why Buffett reduced his holding in Berkshire.
The story continues
Berkshire Hathaway: The Stocks Warren Buffett Was Buying
The mega-cap stocks that Buffett bought during the first quarter were none other than Berkshire Hathaway. Specifically, it spent $2.6 billion on share repurchases during the first quarter of 2024, based $9.2 billion in share repurchases in 2023. Buffett has repurchased Berkshire shares in every quarter since the fourth quarter of 2018, which totals 22 consecutive quarters.
This has consequences because the repurchase agreement stipulates that Buffett can only buy Berkshire shares when he “believes that the repurchase price is below Berkshire’s intrinsic value, conservatively determined.” In other words, Buffett believes that stocks have consistently traded at a discount to their true value for several years.
Berkshire is an attractive investment for three reasons. First, his insurance subsidiaries generate money in the form of premiums, and Buffett has historically achieved good returns by investing that capital. Berkshire’s book value per share has increased 11.1% annually over the past decade, while the S&P 500 has returned 10.9% annually over the same period. Changes in book value per share are a good indicator of changes in intrinsic value, so the implication is that Berkshire has gained value faster than the S&P 500 over the past decade.
Second, Berkshire has dozens of subsidiaries that operate in a wide range of industries, including insurance, rail freight, energy, retail and utilities. Many of these wholly owned companies provide goods and services that are essential in any economic environment, such that Berkshire has historically outperformed the S&P 500 during bear markets, as shown in the chart below.
|
March 2000 |
(49%) |
(24%) |
|
October 2007 |
(57%) |
(54%) |
|
February 2020 |
(34%) |
(30%) |
|
January 2022 |
(25%) |
(27%) |
|
Average |
(41%) |
(34%) |
Data source: Yardeni Research, Ycharts.
Third, Warren Buffett has great confidence in Berkshire. “[W]With our current business combination, Berkshire should perform somewhat better than the average American company and, more importantly, should also operate with a materially lower risk of permanent loss of capital,” he wrote in his last letter to shareholders. The S&P 500 is synonymous with the US stock market and therefore a benchmark for the average American company. Therefore, Buffett claims that Berkshire should safely outperform the S&P 500 in the long term.
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Warren Buffett Is Selling Apple Stock and Buying Shiny Mega-Cap Stock Instead was originally published by The Motley Fool
The spotlight next week will shift somewhat to the Federal Reserve’s second-quarter earnings season and monetary policy. Market watchers will be treated to results from several major names, including Dow 30 components Goldman Sachs (GS), UnitedHealth (UNH), Johnson & Johnson (JNJ) and American Express (AXP), along with streaming giant Netflix (NFLX).
The Fed will still attract some attention as investors will be eager to hear from a packed lineup of central bank speakers just before the policy meeting lockout period.
In terms of the economic calendar, after fifteen days of labor market and inflation indicators, activity data will gain momentum in the form of the latest retail sales and industrial production reports.
Earnings Highlight: Monday, July 15 – Goldman Sachs (GS) and BlackRock (Black). See the full earnings calendar.
Earnings Highlight: Tuesday, July 16 – UnitedHealth (UNH), Bank of America (BAC), Progressive (PGR), Morgan Stanley (IN), PNC Financial (PNC) and JB Hunt Transport (JBHT). See the full earnings calendar.
Earnings Highlight: Wednesday, July 17 – Johnson & Johnson (JNJ), US Bancorp (USB), Morgan Children (KMI), United Airlines (UAL) and Ally Financial (ALLY). See the full earnings calendar.
Earnings Highlight: Thursday, July 18 – Netflix (NFLX), Abbott Laboratories (ABT), Black stone (BX), Domino’s pizza (ZDP) and Taiwan Semiconductor Manufacturing (TSM). See the full earnings calendar.
Earnings Highlight: Friday, July 19 – American Express (AXP), Halliburton (THANKS) and Travelers (VRT (return to recoverable value)) See the full earnings calendar.
IPO Observation: Hospital and healthcare clinic operator Ardent Health Partners (TARDT), insurance service provider Twfg (TWFG) and the biotechnology company Lirum Therapeutics (LRTX) are expected to price their IPOs and begin trading next week. The analyst quiet period ends at Rectitude (RECT) to free up analysts to publish ratings.
Police cars outside the residence of Thomas Matthew Crooks, the suspected shooter at a Trump rally on Saturday, investigate the area in Pennsylvania. Following the incident, one rally attendee was killed, two rally attendees are in critical condition and Donald Trump suffered a non-fatal gunshot wound. The shooter is dead after being shot dead by the United States Secret Service. (Photo by Kyle Mazza/Anadolu via Getty Images)
Investors will initially favor traditional safe-haven assets and may lean toward trades more closely tied to former President Donald Trump’s chances of winning the White House after he survived an assassination attempt, according to market watchers.
“There will undoubtedly be some protectionist or safe-haven flows into Asia early this morning,” said Nick Twidale, chief market analyst at ATFX Global Markets. “I suspect gold could test all-time highs, we’ll see the yen being bought and the dollar, and flows into Treasuries as well.”
Early market commentary suggested Trump’s shooting at a rally in Pennsylvania on Saturday could also prompt traders to increase his likelihood of success in the November election. His support for looser fiscal policy and higher tariffs is generally seen as likely to benefit the dollar and weaken Treasuries.
An indicator of market sentiment heading into the weekend: Bitcoin surged above $60,000, likely reflecting Trump’s pro-crypto stance.
Other assets positively linked to the so-called Trump trade include stocks of energy companies, private prisons, credit card companies and health insurers.
Traders will also be closely watching market measures of expected volatility on Monday, such as those in the tariff-sensitive Chinese yuan and Mexican peso, which have begun to price in the U.S. vote.
Trump said he was shot in the right ear after a shooting at his rally. His campaign said in a statement that he was “fine” after the incident, which prompted him to rush off the stage.
“Currencies will be the first major market on Monday in Asia to react to the weekend’s shots. There’s potential for extra volatility, and getting a clear reading could be especially difficult because liquidity will be hurt by Japan’s national holiday,” said Garfield Reynolds, Asia team leader for Bloomberg Markets Live.
Strategists had already expected a volatile run-up to the election, particularly as Democrats are still agonizing over President Joe Biden’s candidacy after his poor performance in last month’s debate raised questions about his age. Investors were also grappling with the possibility that the election could end in a drawn-out dispute or political violence.
But there is little precedent for events like those in Pennsylvania. When President Ronald Reagan was shot four decades ago, the stock market plunged before closing early. The next day, March 31, 1981, the S&P 500 rose more than 1% and benchmark 10-year Treasury yields fell 9 basis points to 13.13%, according to data compiled by Bloomberg.
Bond investors should pay particular attention as the attack is likely to boost Trump’s election chances and ultimately lead to concerns about the fiscal outlook, according to Marko Papic, chief strategist at California-based BCA Research Inc.
“The bond market must at some point become aware of President Trump’s greater chances of winning the White House than any of his rivals,” Papic wrote. “And I continue to believe that as his chances increase, so too must the likelihood of a bond market revolt.”
Kyle Rodda, senior financial markets analyst at Capital.com, said he was seeing client flows into Bitcoin and gold following the shooting.
“This news marks a turning point in American policy norms,” he said. “For markets, it means safe-haven trades, but more tilted toward non-traditional safe-havens.”
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Latest news on July 11, 2024: Airtel says its new Xstream Fiber plans bundle over 350 live TV channels (Official Photo) (Reuters) Disclaimer: This is an AI-generated live blog and has not been edited by Hindustan Times staff.
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Jio Financial share price: Should you buy this Reliance group stock on Monday ahead of Q1 FY2024 results?
Q1 2024 Results: Jio Financial Share Price will be in focus on Monday as the Reliance Group company has a fixed board meeting on July 15, 2024 to consider and approve the company’s unaudited standalone and consolidated financial results. Trust Group company informed about the Q1 2024 Results date on Wednesday last week via an exchange filing. According to stock market experts, Jio Financial Services Limited is poised to deliver impressive Q1 results for FY25 on solid operating income. They have forecast a healthy QoQ PAT for the company in Q1 FY25.
Jio Financial Services News
Speaking on the Jio Financial Services Q1 2024 results, Manish Chowdhury, Head of Research, StoxBox, said, “We believe Jio Financial Services is poised to deliver impressive results in Q1FY25 aided by its operating income, which is likely to show robust growth driven by strong investment income, which in turn should lead to healthy PAT growth on a sequential basis. Jio Financial Services continues to make strategic moves such as launching digital products and expanding its ecosystem, with a clear focus on future growth. The company has announced plans to introduce products for lending against stocks and mutual funds, leveraging Jio’s large user base, which could be a significant growth driver in the coming quarters.”
“Furthermore, with the NBFC receiving RBI approval to become a primary investment company, Jio Financial Services is well-positioned to unlock value from its investments. Overall, we expect the company to report robust numbers in the upcoming quarter,” the StoxBox expert added.
Jio Financial Stock Target Price
Speaking about the technical outlook of Jio Financial share price, Ganesh Dongre, Senior Manager, Technical Research at Anand Rathi, said, “Jio Financial Services share price is poised to make a fresh high at the ₹260 apiece level. If the stock breaks above this mark, the Reliance Group stock could make a fresh high by touching the ₹290-₹295 zone. Hence, those with Jio Finance stock in their portfolio are advised to stick to the script by keeping a stop loss at ₹205. If the stock breaks above ₹260 decisively, then one can upgrade the stop loss at ₹240 for the near-term target of ₹295.”
On the advice to new buyers regarding Jio Financial stock, Ganesh Dongre said, “New buyers are advised to wait for the breakout. Once the stock breaks above â‚ą260, one can buy this Reliance Group stock at the short term target of â‚ą295, keeping a stop loss of â‚ą240 apiece.”
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage firms, and not of Mint. Investors are advised to consult with certified experts before making any investment decisions.
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