Warren Buffett surprises by cutting Berkshire Hathaway’s multi-year stake in Apple in Q2

OMAHA, Neb. — Billionaire Warren Buffett has downgraded Berkshire Hathaway’s massive stake in Apple, a move that could prove troubling for the broader stock market — both because the investor is highly respected and because there has been little positive financial news recently.

Just two years ago, Buffett named the stock one of four business giants of his conglomerate, along with Berkshire’s insurance, utilities and BNSF railroad, that he owned outright. That gave investors the impression that Buffett might hold on to Apple indefinitely, as he did with the Coca-Cola and American Express stocks he bought decades ago.

However, over the past year he has reduced his stake in Apple and recently sold some of his shares in Bank of America and Chinese electric vehicle maker BYD, while buying very little.

As a result, Buffett now has almost $277 billion in cash, compared to a record $189 billion just three months ago.

“That could be concerning for markets, especially given the news last week” about weak tech sector results, disappointing jobs reports and uncertainty about the future of interest rates, said Jim Shanahan, an analyst at Edward Jones.

Buffett has been showering praise on Apple CEO Tim Cook, who attended Berkshire’s annual meeting in Omaha in May and spoke of how consumers are feverishly devoted to their iPhones and loath to change. He has reduced Berkshire’s stake in Apple by more than 10% in the first three months of this year, selling more than 116 million shares, but the sale disclosed Saturday was a much bigger move.

Berkshire did not provide an exact number of Apple shares in Saturday’s report, but estimated the investment was worth $84.2 billion at the end of the second quarter, even though the shares had risen to $237.23 over the summer. At the end of the first quarter, Berkshire’s Apple shares were worth $135.4 billion.

Shanahan estimates Berkshire still owns about 400 million Apple shares.

Still, while CFRA Research analyst Cathy Seifert sees selling Apple as a more responsible way to manage his portfolio because the tech giant has become such a significant part of Berkshire’s assets, it does seem like Buffett may be preparing for a downturn.

“This is a company preparing for a weaker economy,” Seifert said.

Berkshire reported a slight drop in net income as the value of its paper investment fell. The company said it earned $30.348 billion, or $21,122 per Class A share, in the second quarter. That was down from $35.912 billion, or $24,775 per Class A share, a year ago.

Buffett has long warned investors to look primarily at operating profits when assessing Berkshire’s performance, as the figures do not include investment gains and losses, which can vary significantly from quarter to quarter.

By that measure, Berkshire’s operating profits rose more than 15% to $11.598 billion, or $8,072.16 per Class A share, from $10.043 billion, or $6,928.40 per Class A share, a year ago. Geico led Berkshire’s business improvement, while many other companies that are more sensitive to the economy posted weak results.

The results easily topped the $6,530.25 per share earnings expected by four analysts surveyed by FactSet Research.

Berkshire owns a number of insurance companies, as well as BNSF Railway, several large utilities and a diversified group of retail and manufacturing businesses, including brands such as Dairy Queen and See’s Candy.