Any investment firm with more than $100 million in investments must disclose its trading activities 45 days after the quarter in which it executed those transactions. This information is then released to the public, allowing investors to keep up with greats like Warren Buffett and the U.S. economy Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) have done.
Berkshire Hathaway bought his first Apple (NASDAQ: AAPL) shares in 2016, but it has been selling off the shares lately. In the first quarter, Berkshire dumped more than 116 million shares of Apple, with an estimated value of more than $21 billion based on the average price of Apple’s shares in the first quarter.
This is a huge move considering Apple used to make up over 50% of Berkshire’s portfolio and has now dropped to 40%. So why is Berkshire selling?
It’s all about realizing profits – and taking advantage of an unusually low tax rate on corporate profits.
Buffett and Berkshire use the current tax rate to their advantage
When Berkshire started buying Apple in 2016, it was a very different stock. Apple was drastically undervalued despite rapid growth. While none of these facts are true anymore, Apple’s growth over the past decade has been impressive, and anyone who bought shares when Buffett did and held on to them along the way has done well.
Of the shares Berkshire sold, the average estimated purchase price was $39.62 per share. Since the average price of Apple’s stock in the first quarter was $182, Buffett had a paper profit of 359%. That’s a fantastic return for just eight years of investing, and anyone would be happy with that profit.
But with profits come taxes, and that’s why Berkshire is selling.
The current corporate tax rate is 21%, meaning that Berkshire will have to pay the US government $29.90 of its estimated profit of $142.38 per share. During Berkshire’s annual meeting, Buffett called out that this percentage is historically low. Buffett also recalled times when it was 35% or even 52% not so long ago.
As a result, the company is now cautiously booking profits as higher taxes loom. The Biden administration has already proposed raising the corporate tax rate to 28%, potentially putting Berkshire on the clock to realize profits. Whether this happens is not a discussion that Buffett seems willing to have. He’s just aware that the current interest rate is the lowest it’s ever been, and he wants to use it while it’s available.
At Berkshire’s annual meeting, Buffett also made it clear that Apple would remain the largest investment unless something unforeseen happened.
However, I think there are other reasons why Buffett and other shareholders should continue to sell their stakes in Apple.
Apple is no longer the company it once was
As mentioned above, Apple is no longer growing or cheap. In mid-2022, Apple’s revenues peaked and began to decline.
This isn’t a trend investors want to see, yet Apple has maintained an ultra-premium valuation despite this troubling shift. At almost 30 times forward earnings, Apple is valued more highly than similar companies Metaplatforms (23 times future earnings) and Alphabet (24 times forward earnings), large technology companies with meaningful growth and strong offerings in growing industries such as artificial intelligence (AI).
Apple hasn’t unveiled an AI strategy yet and hasn’t launched an impactful product recently.
While Apple remains a well-managed company that won’t lose investors’ money, it doesn’t seem to be innovating like it used to. As a result, I think there are much better tech stocks than Apple to invest in right now.
Should You Invest $1,000 in Apple Right Now?
Before you buy shares in Apple, consider this:
The Motley Fool Stock Advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Apple wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $652,342!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns May 13, 2024
Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Keithen Drury has positions in Alphabet and Meta platforms. The Motley Fool holds positions in and recommends Alphabet, Apple, Berkshire Hathaway, and Meta Platforms. The Motley Fool has a disclosure policy.
Warren Buffett just sold $21 billion worth of Apple stock. This is why. was originally published by The Motley Fool
