Billionaire Warren Buffett sold 67% of Berkshire’s stake in Apple and is building a beloved consumer brand whose shares have risen 7,000% since its IPO
There is no money manager who commands more attention from the investment community than billionaire Warren Buffett. In his almost sixty years as CEO of Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B)the aptly named “Oracle of Omaha” has overseen a cumulative return on his company’s Class A shares (BRK.A) of more than 5,660,000%, as of the closing bell on November 14.
Buffett’s ability to consistently outperform Wall Street’s major indexes over long periods of time has some investors eager to ride his wave. Form 13F filings with the Securities and Exchange Commission make this relatively easy to do.
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Warren Buffett, CEO of Berkshire Hathaway. Image source: The Motley Fool.
A 13F is a mandatory filing by institutional investors with at least $100 million in assets under management. It gives investors a snapshot of which stocks Wall Street’s smartest money managers bought and sold in the last quarter. November 14 was the filing deadline for disclosing trading activities for the quarter ending September.
In line with Berkshire Hathaway’s 13Fs over the past two years, Buffett and his team have been net sellers of stocks and highly selective buyers. Based on the latest round of 13Fs, one top holding company continues to steal the spotlight, while another beloved consumer goods brand is suddenly a hot buy.
Based on Berkshire Hathaway’s consolidated cash flow statements, Buffett and his team have sold more shares than they bought for eight consecutive quarters (dating October 1, 2022), for a total of $166.2 billion. No stock represents a larger percentage of this $166.2 billion than the top consumer brand Apple(NASDAQ: AAPL).
In the past year ending September 30, Berkshire Hathaway sold 615,560,382 shares of Apple, reducing its stake in Wall Street’s second-largest company by a whopping 67%. Keep in mind that even after dumping 615.56 million shares of Apple, the company is still Berkshire’s largest holding, with a market value of almost $25 billion.
At Berkshire Hathaway’s annual shareholder meeting in early May, Buffett opined during the question-and-answer session with investors that the corporate tax rate would likely be higher. He hinted that selling Apple stock was a way for Berkshire to capture significant unrealized profits at a favorable tax rate.
However, with Donald Trump winning the presidency and Republicans controlling both houses of Congress, corporate tax increases appear to be off the table for the next four years. Considering that Apple’s stock has risen significantly on the back of artificial intelligence (AI) aspirations like what Buffett has been selling, it’s fair to say that Berkshire Hathaway has missed out on a pretty penny in profits.
But there may be more to this sales activity than meets the eye.
Although Warren Buffett hinted at tax-related sales at Berkshire’s annual shareholder meeting, he might not be so impressed with Apple’s valuation. The Oracle of Omaha is an avid value investor, and Apple currently trades at 38 times twelve-month earnings. Apple’s historically high valuation ratio is on par with Apple’s S&P500‘s Shiller price-to-earnings (P/E) ratio reached the third-highest valuation multiple, after backtesting to January 1871.
Additionally, sales of Apple’s physical products have stalled over the past two years. While subscription services growth has been robust, demand for iPhone, Mac, iPad and accessories has been tepid at best.
Image source: Getty Images.
Even though Warren Buffett and his top investment advisors Todd Combs and Ted Weschler were big net sellers of stocks in 2024, they bought very selectively. Examples include building their stake in Wall Street’s most popular reverse stock split, Sirius XM Holdingsas well as an addition to property and casualty insurers Chubbwhich was Berkshire’s confidential property until mid-May.
During the quarter ending in September, Buffett and his team made very few purchases… with one exception. The biggest purchase of the third quarter was opening a brand new position in the beloved fast food restaurant chain Domino’s Pizza(NYSE:DPZ). The 1,277,256 shares purchased represented a market value of almost $550 million at the end of September.
Domino’s Pizza has been one of the best-performing stocks on Wall Street since its initial public offering (IPO) in 2004. Since its debut on July 13, 2004, the stock has catapulted more than 7,000%, taking into account dividends and the robust after-hours move related to Berkshire Hathaway’s 13F filing.
In December last year, Domino’s introduced its five-year plan, which it called “Hungry for MORE.” The reason ‘MORE’ is capitalized is because it represents an acronym for the ways in which the company plans to improve its operational efficiency and customer loyalty in the coming years.
Domino’s “M” is about creating the “tastiest food” and is inspired by new menu offerings and the consistency of the food preparation process. The “O” stands for “operational excellence” and focuses on food consistency and maximizing output through its proprietary technology-driven operating system. The ‘R’ is about ‘renowned value’ and relates to the company’s rewards program, which is designed to keep customers loyal to the brand. Finally, the “E” stands for “increasing” the value of the brand through its franchisees.
Warren Buffett is a big fan of management teams that own their successes And their failures. Domino’s success really started in early 2010 mea culpa advertising campaign. The company has not been afraid to admit past mistakes (i.e. the pizza was sub-par) and has successfully built a connection with consumers through honest marketing.
The Oracle of Omaha is also attracted to companies with shareholder-friendly capital return programs. Domino’s has been increasing its annual base payout for more than a decade and has bought back its shares in just a handful of quarters. A majority of Berkshire Hathaway’s shares are proven dividend payers.
While it’s hard to argue with Domino’s stellar returns, a price-to-earnings ratio of 27 isn’t exactly cheap. It will be interesting to see if the Oracle of Omaha and his team will build on this position in the coming quarters.
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Sean Williams has positions in Sirius XM. The Motley Fool owns and recommends positions in Apple, Berkshire Hathaway, and Domino’s Pizza. The Motley Fool has a disclosure policy.
Billionaire Warren Buffett sold 67% of Berkshire’s stake in Apple and is building into a beloved consumer brand whose shares have risen 7,000% since the IPO was originally published by The Motley Fool
