Keithen Drury, The Motley Fool
5 min read
In This Article:
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Greg Abel will replace the legendary CEO Warren Buffett at the end of the year.
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Apple stock has been the hallmark of Buffett's leadership.
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Apple is facing many challenges that could be a significant headwind to its growth.
Purchasing Apple (NASDAQ: AAPL) stock during his tenure at Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) will be one of Warren Buffett's top legacies. Apple stock has performed well since Berkshire first bought shares in Q1 2016, and has spent a lot of time as the world's largest company (although it currently doesn't hold that title).
However, will Berkshire still hold on to Apple shares with Buffett stepping down as CEO at the end of the year and Greg Abel taking his spot? Or will it find something else to invest in? Let's take a look.
When Buffett first started buying Apple shares in Q1 2016, the stock looked nothing like it does today. It traded around 10 times trailing earnings back then, although its growth was slipping.
Still, Buffett and his team recognized that Apple devices, particularly the iPhone, were incredibly popular, and a technology everyone would have on them. They concluded that the sales decline was temporary, and scooped up shares for a dirt cheap price.
The rest is history, as Apple's sales growth returned and the stock increased from its bargain price tag to a more respectable figure. However, the stock looks like it has gotten a bit too expensive.
Although Apple is well off its all-time high valuation of more than 40 times earnings, it's still around 3 times more expensive than it was nearly a decade ago when Buffett was buying shares. Furthermore, Apple's growth has slowed to a snail's pace, with revenue only rising 5% during its last quarter.
That's not market-beating growth, yet Apple trades for a valuation well above the S&P 500 (SNPINDEX: ^GSPC), which trades for 22.6 times trailing earnings.
Sometimes, when you have a great success, you become emotionally tied to it. It's possible that Buffett is that way with Apple stock, as it made Berkshire a ton of money and transformed the company into what it is today. However, Apple stock is no longer a value investment (Buffett's favorite variety) or a growth investment; it's just an expensive stock.
With new leadership at the helm, Berkshire Hathaway may decide to unload the rest of its position in Apple, something it started doing in late 2023.
In Q3 2023, Berkshire owned its maximum Apple shares: 915.6 million, valued at over $150 billion. Now, that figure has been reduced to an even 300 million shares, with a value of around $75 billion.
