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Buffett Cuts Apple Stake: What Should You Do With AAPL Stock?
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Warren Buffett has reduced his stake in Apple (AAPL - Free Report) by almost 50%, per the latest filings by Berkshire Hathaway (BRK.B - Free Report) . The legendary investor’s company now holds 400 million AAPL shares worth $84.2 billion at the end of the second quarter of 2024.
Apart from Apple, BRK.B also reduced its stake at Bank of America (BAC - Free Report) to $41.1 billion. Roughly 72% of Berkshire’s holdings are concentrated in only five stocks: Apple, American Express, Bank of America, Coca Cola (KO - Free Report) and Chevron.
The sharp sell-off is unlikely of Buffett who is known to hold onto stocks for a very long time. The reduction in stake led to an increase in Berkshire’s cash balance to roughly $277 billion, a move partially to lower capital gain tax as mentioned by Buffett in May.
However, Buffett's followers know that he loves cash in hand as substantial cash allows the company to do whatever it wants. Hence, the question is, should an investor follow Buffett’s move to sell off Apple shares or should pile up more at current prices?
Apple Stock Overvalued, Underperforms Sector
The Value Style Score of D suggests that AAPL is overvalued at this moment.
Apple is trading at a premium with a forward 12-month P/E of 28.37X compared with the Zacks Computer & Technology sector’s 24.49X and higher than the median of 27.37X, reflecting a stretched valuation.
Price/Earnings Ratio (F12M)
Image Source: Zacks Investment Research
In terms of performance, Apple shares have gained 9.2% year to date, outperforming the Zacks Computer & Technology sector’s return of 10.3%.
Moreover, Apple shares are trading below the 50-day moving average, indicating a bearish trend.
Apple Shares Trade Below 50-Day Moving Average
Image Source: Zacks Investment Research
In the past month, Apple shares have declined 7.6%, outperforming the sector’s drop of 14.1%. We believe the dip presents a significant opportunity for investors to pile up on AAPL shares, given the iPhone maker’s growing focus on leveraging AI in its devices.
YTD Performance
Image Source: Zacks Investment Research
AI Focus Aids AAPL’s Long-Term Prospects
Apple has been gaining attention from investors thanks to its AI push with the introduction of Apple Intelligence, an advanced personal intelligence system seamlessly integrated into iOS 18, iPadOS 18 and macOS Sequoia.
Leveraging the power of Generative AI models, Apple Intelligence aims to enhance user experience across iPhone, iPad, and Mac by combining robust language and image understanding with personal context.
Siri, powered by Apple Intelligence, has become more natural, contextually aware and capable of handling complex tasks.
In a significant enhancement, Apple is integrating ChatGPT into its platforms, allowing users to access its expertise directly within iOS 18, iPadOS 18 and macOS Sequoia.
Services Business: Cash Cow for AAPL Stock
Although Apple’s business primarily runs around its flagship iPhone, the Services portfolio has emerged as the company’s new cash cow. In the fiscal third quarter, Services revenues grew 14.1% year over year to $24.21 billion and accounted for 28.2% of sales.
The Services business benefits from the growing demand for Apple TV+ content as well as the adoption of Apple Pay. It recently expanded Tap to Pay on iPhone to more markets including Japan, Canada, Italy and Germany.
New updates include the U.S. national park hikes and custom walk routes and Apple Maps, the ability to pay with rewards using Apple Pay, collaborative listening with Apple Music, and a redesigned Apple Fitness+ to boost user experience.
Solid Liquidity Supports AAPL’s Dividend
Apple’s strong balance sheet and robust cash flow generating ability are noteworthy. As of Jun 30, 2024, cash & marketable securities were $153.04 billion compared with term debt of $98.31 billion.
Apple returned nearly $32 billion in the third quarter of fiscal 2024 through dividend payouts ($3.9 billion) and share repurchases ($26 billion).
AAPL’s board authorized an additional $110 billion for share repurchases and also raised dividend payout by 4% to 25 cents per share in the fiscal second quarter.
Conclusion
Apple’s AI push is hard to ignore. The Services business has emerged as AAPL’s new cash cow with an expanding content portfolio for Apple TV+, Apple Pay and Apple Arcade.
An expanding user base of more than 2 billion active devices makes Apple’s investment profile attractive. Its strong liquidity position will help AAPL stock to sustain its shareholder-friendly initiatives.
Image: Bigstock
Buffett Cuts Apple Stake: What Should You Do With AAPL Stock?
Warren Buffett has reduced his stake in Apple (AAPL - Free Report) by almost 50%, per the latest filings by Berkshire Hathaway (BRK.B - Free Report) . The legendary investor’s company now holds 400 million AAPL shares worth $84.2 billion at the end of the second quarter of 2024.
Apart from Apple, BRK.B also reduced its stake at Bank of America (BAC - Free Report) to $41.1 billion. Roughly 72% of Berkshire’s holdings are concentrated in only five stocks: Apple, American Express, Bank of America, Coca Cola (KO - Free Report) and Chevron.
The sharp sell-off is unlikely of Buffett who is known to hold onto stocks for a very long time. The reduction in stake led to an increase in Berkshire’s cash balance to roughly $277 billion, a move partially to lower capital gain tax as mentioned by Buffett in May.
However, Buffett's followers know that he loves cash in hand as substantial cash allows the company to do whatever it wants. Hence, the question is, should an investor follow Buffett’s move to sell off Apple shares or should pile up more at current prices?
Apple Stock Overvalued, Underperforms Sector
The Value Style Score of D suggests that AAPL is overvalued at this moment.
Apple is trading at a premium with a forward 12-month P/E of 28.37X compared with the Zacks Computer & Technology sector’s 24.49X and higher than the median of 27.37X, reflecting a stretched valuation.
Price/Earnings Ratio (F12M)
Image Source: Zacks Investment Research
In terms of performance, Apple shares have gained 9.2% year to date, outperforming the Zacks Computer & Technology sector’s return of 10.3%.
Moreover, Apple shares are trading below the 50-day moving average, indicating a bearish trend.
Apple Shares Trade Below 50-Day Moving Average
Image Source: Zacks Investment Research
In the past month, Apple shares have declined 7.6%, outperforming the sector’s drop of 14.1%. We believe the dip presents a significant opportunity for investors to pile up on AAPL shares, given the iPhone maker’s growing focus on leveraging AI in its devices.
YTD Performance
Image Source: Zacks Investment Research
AI Focus Aids AAPL’s Long-Term Prospects
Apple has been gaining attention from investors thanks to its AI push with the introduction of Apple Intelligence, an advanced personal intelligence system seamlessly integrated into iOS 18, iPadOS 18 and macOS Sequoia.
Leveraging the power of Generative AI models, Apple Intelligence aims to enhance user experience across iPhone, iPad, and Mac by combining robust language and image understanding with personal context.
Apple Inc. Price and Consensus
Apple Inc. price-consensus-chart | Apple Inc. Quote
Siri, powered by Apple Intelligence, has become more natural, contextually aware and capable of handling complex tasks.
In a significant enhancement, Apple is integrating ChatGPT into its platforms, allowing users to access its expertise directly within iOS 18, iPadOS 18 and macOS Sequoia.
Services Business: Cash Cow for AAPL Stock
Although Apple’s business primarily runs around its flagship iPhone, the Services portfolio has emerged as the company’s new cash cow. In the fiscal third quarter, Services revenues grew 14.1% year over year to $24.21 billion and accounted for 28.2% of sales.
The Services business benefits from the growing demand for Apple TV+ content as well as the adoption of Apple Pay. It recently expanded Tap to Pay on iPhone to more markets including Japan, Canada, Italy and Germany.
New updates include the U.S. national park hikes and custom walk routes and Apple Maps, the ability to pay with rewards using Apple Pay, collaborative listening with Apple Music, and a redesigned Apple Fitness+ to boost user experience.
Solid Liquidity Supports AAPL’s Dividend
Apple’s strong balance sheet and robust cash flow generating ability are noteworthy. As of Jun 30, 2024, cash & marketable securities were $153.04 billion compared with term debt of $98.31 billion.
Apple returned nearly $32 billion in the third quarter of fiscal 2024 through dividend payouts ($3.9 billion) and share repurchases ($26 billion).
AAPL’s board authorized an additional $110 billion for share repurchases and also raised dividend payout by 4% to 25 cents per share in the fiscal second quarter.
Conclusion
Apple’s AI push is hard to ignore. The Services business has emerged as AAPL’s new cash cow with an expanding content portfolio for Apple TV+, Apple Pay and Apple Arcade.
An expanding user base of more than 2 billion active devices makes Apple’s investment profile attractive. Its strong liquidity position will help AAPL stock to sustain its shareholder-friendly initiatives.
Apple currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.