Warren Buffett Just Dumped His Apple Stock. Should You, Too?

In a world driven by cutting-edge technology, Cupertino-based Apple Inc. (AAPL) is a pioneer that consistently introduces products that delight millions. From iPhones to Macs, Apple’s innovation is unmatched, creating an ecosystem that is deeply embedded in our lives. AAPL stock remains a cornerstone in countless portfolios, reflecting the company’s enduring influence and appeal.

However, in a surprising turn of events, legendary investor Warren Buffett has removed his Apple holdings from his Berkshire Hathaway (BRK.A)(BRK.B) portfolio — a move that made headlines last week. When the “Oracle of Omaha” strikes, the market pays close attention, and this time is no different, as AAPL shares fell on the news. But since the stock is still Berkshire’s best-performing holding by far, analysts remain bullish on Apple, predicting more growth as the tech giant makes strides in artificial intelligence (AI).

So, is this a great time to buy Apple stock when it is more than 10% off its peak? Let’s take a closer look.

About Apple shares

Apple Inc. (AAPL), headquartered in California and founded in 1977, is a technology titan known for groundbreaking consumer electronics such as the iPhone, iPad, and Mac. With a market capitalization of $3.2 trillion, the “Magnificent Seven” stock dominates not only hardware but also software and digital services. Continuously shaping technology and design trends, Apple thrives on its loyal customer base and innovative ecosystem, setting the pace for the industry.

Apple shares are up 21.4% over the past 52 weeks, though they are down 10% from a record high of $237.23 hit on July 1. The stock has been riding on excitement over Apple’s artificial intelligence plans. Morgan Stanley (MS) rated the stock a “top pick” on the news and raised its price target.

After falling behind its biggest tech rivals earlier this year, AAPL is now back in the game, up 12.3% year-over-year and 17.2% over the past three months.

Apple’s decade of dividend payments underscores its unwavering commitment to shareholders. On August 1, the board declared a dividend of $0.25 per share, payable on August 15. The annual dividend of $1.00 per share translates to a yield of 0.47%.

Additionally, in May 2024, Apple announced an authorization to repurchase shares for a record $110 billion – the largest in U.S. history – further demonstrating the company’s commitment to rewarding investors while pursuing growth opportunities.

In terms of valuation, the company’s shares are trading at 31.03 times forward earnings and 8.30 times sales – roughly in line with large-cap peers.

Apple’s Third Quarter Beats Wall Street Forecasts

Following Apple’s fiscal third-quarter earnings on Aug. 1, shares closed slightly higher the next day, shaking off a broad sell-off on Wall Street as the stock beat estimates. While revenue rose 5% annually to $85.8 billion, beating estimates by 1.7%, EPS rose 11% to $1.40, also beating estimates by 4.5%.

Apple’s product sales, which accounted for 71.8% of total revenue, rose 1.6% annually to $61.6 billion. The Services segment, which accounted for 28.2% of total sales, rose 14.1% to $24.2 billion.

But Apple’s sales slump in China continued. Revenue from the region, a key market, fell 6.5% year over year to $14.7 billion. Meanwhile, iPhone sales, while down 1% to $39.3 billion, showed signs of stabilization after a 10% year-on-year decline in Q2.

Looking ahead, Apple’s plan to introduce AI-powered features in the next version of the iPhone could be groundbreaking. The upcoming AI tools, which are expected to enhance Siri’s capabilities and introduce fun new features like custom emojis, will be part of a software update expected this fall. However, these features will only be available on iPhones equipped with Apple’s advanced AI chip, which currently resides in two premium models. Since the iPhone 16 is expected to include this AI chip, analysts predict an increase in upgrades from users holding on to older devices.

Financially, Apple’s strong operating cash flow of $29 billion in Q3 allowed the company to return more than $32 billion to shareholders through dividends and share repurchases. Despite challenges in product sales, the company continued to see revenue growth and strengthen its cash reserves, setting the stage for a potentially strong Q4 as new products are introduced in September.

Apple is forecasting Q4 revenue growth that will mirror Q3 year-over-year, with the Services segment expected to achieve double-digit growth. Gross margins are expected to be in the range of 45.5% to 46.5%, and operating expenses are estimated at $14.2 billion to $14.4 billion. As Apple continues to invest in AI, the company remains well-positioned for future growth.

Analysts following Apple are forecasting the company’s fiscal 2024 earnings to be $6.68 per share, up 9% year over year, and then increase another 12.6% to $7.52 per share in fiscal 2025.

Apple shares fall

Apple shares fell 4.8% on Aug. 5, marking a day of losses for markets after news broke over the weekend that Warren Buffett’s Berkshire Hathaway had halved its stake in AAPL in the final quarter, continuing a trend that began earlier this year. Buffett, known for his long-standing admiration for Apple, sold an additional 390 million shares in Q2 worth $90 billion, on top of 115 million shares in Q1.

Buffett’s sell-off in stock could signal a change, but there’s more to the story. While it suggests the Oracle of Omaha could cool Apple, context matters. When Berkshire first trimmed its stake in Apple in Q1, Buffett suggested the move was for tax reasons, anticipating higher corporate tax rates in the future.

Despite the recent sale, Apple remains Berkshire’s largest shareholder, valued at about $84.2 billion. In fact, Buffett mentioned at Berkshire’s annual meeting in May that it was “extremely likely” that Apple would remain the company’s largest position through 2024.

For investors, the decline may not be a reason to follow Buffett’s lead, but rather an opportunity to buy into Apple’s solid AI and cash flow initiatives while the stock is temporarily devalued.

What do analysts expect from Apple stock?

Many brokerage firms such as Citigroup(C), Rosenblatt, Goldman Sachs(GS), Piper Sandler, and Wedbush have become more bullish, raising their price targets for AAPL following Apple’s stellar third-quarter results.

Most recently, on Aug. 6, Morgan Stanley analyst Erik Woodring maintained his previous $273 price target on AAPL and maintained his “Overweight” rating. Woodring highlighted Apple’s strong future in smartphone AI as a major driver.

He added that “Apple Intelligence is a clear catalyst for increasing iPhone and iPad sales.” Since the new technology is currently compatible with just 8% of iPhone and iPad devices and the 1.3 billion iPhones in circulation, the analyst believes Apple could sell nearly 500 million iPhones in the next two years.

AAPL stock has an overall rating of “Moderate Buy.” Of the 30 analysts covering the stock, 20 recommend a “Strong Buy,” three suggest a “Moderate Buy,” six say it is a “Hold,” and the remaining one analyst has a “Strong Sell” rating.

The average price target for AAPL is $239.41, indicating a potential upside of 10.7% from current levels. The highest price target of $300, according to analysts at Loop Capital, means the stock could rise as much as 38.7%.

On the date of publication, Sristi Suman Jayaswal did not hold (directly or indirectly) a position in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. For further information, please refer to Barchart’s Disclosure Policy here.