Here’s Why It’s Time to Follow Warren Buffett and Sell Apple Stock

Apple


(NASDAQ: AAPL)

used to be an outsize position of Warren Buffett and his team at

Berkshire Hathaway


(NYSE: BRK.A)


(NYSE: BRK.B)

. Although it’s still his largest by a decent margin, recent sales of the stock may have some investors questioning whether this will last for much longer. Berkshire has been dumping Apple stock quarter after quarter and now has less than half of its Apple shares remaining.

I think this is a genius move, and investors should follow suit as the stock has detached itself from the business’s current performance.

Why is Buffett selling?

There are several potential reasons for the sell-off, but we can assume Buffett doesn’t need the cash. Investors will often sell stocks to raise capital to make other investments. However, Berskhire’s cash and short-term investments total nearly $277 billion. With a cash hoard like that, he doesn’t really need any more.

So why is he selling? According to his comments at Berkshire’s 2024 annual shareholders meeting, Buffett is worried about the capital gains tax rate increasing from its current 21% to 28%. As a result, Berkshire is trying to lock in gains at a lower tax rate while it can. Buffett was quick to say that Apple will remain its largest position and that it believes in the company.

But could there be something else going on here?

Apple is no longer a value stock

Could you imagine if Buffett said, “I am selling Apple stock because the valuation has gotten too high for the actual business performance”? The stock would crater the next day, and Berkshire wouldn’t be able to sell for as high a price. I’m not saying that’s what was actually on Buffett’s mind here, but there is some truth to that view. Apple isn’t the same company that Berkshire bought in early 2016.

The company
Buffett bought for 12 times earnings
is now trading for nearly 35. That’s a much higher premium to pay for a stock, especially one that isn’t growing much at the moment.

Apple is trading like a stock that is growing its revenue and earnings much faster (like back in 2021), but it isn’t doing that and isn’t projected to do so anytime soon. Per Wall Street analysts’ estimates, Apple will grow its earnings by the following amounts over the next few years:

Data source: YCharts.

That’s basically a market-matching growth rate. Should a company that essentially matches the market’s growth trade for a 50% premium over the

S&P 500

index? I’d say no.

In fact, if I presented you with this information without Apple’s name attached, you’d probably decline to invest. That’s why I think dumping Apple stock is a great move, as there are far better investments out there than an overpriced stock with hardly any growth potential left.

Apple isn’t a value stock or a growth stock, which makes it a more uncertain investment. With so many better options available in the market today, I think investors would be wise to
trim their gains like Buffett and look elsewhere
.

Before you buy stock in Apple, consider this: