Will Buffett Cut Back on His Apple Inc. (AAPL) Stock Stake?

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AAPL stock - Will Buffett Cut Back on His Apple Inc. (AAPL) Stock Stake?

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Warren Buffett chooses his companies wisely, and he has cast his vote in favor of Apple Inc. (NASDAQ:AAPL) in a big way. Buffett’s position in AAPL stock now amounts to more than $18 billion of Berkshire Hathaway Inc.’s (NYSE:BRK.B) investment portfolio.

Will Buffett Cut Back on His Apple Inc. (AAPL) Stock Stake?

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When Warren Buffett makes an investment of this size, investors take notice. Now that Apple shares are on the coveted list of Berkshire’s top seven holdings, investors are pondering which direction Buffett will go next.

Specifically, will he continue buying AAPL stock into the recent weakness and trepidation over the pending iPhone 8 release, or will he scale back over this quarter?

High Customer Loyalty, Great Brand

Any follower of Warren Buffett knows that his once-Graham-and-Dodd investment model has shifted to one in which wonderful businesses with great brands, competitive advantages (“moats”) and customer loyalty are favored over the discount “cigarette butt” companies Mr. Buffett once focused on.

Shifting his focus from buying fair companies at an excellent price to excellent companies at a fair price has led him toward the world’s biggest company by market capitalization. After all, Apple would not be where it is today without incredible customer loyalty and brand equity, charging premium prices for its products globally with one of the most revered and recognizable American brands in many parts of the world.

Buying “America first” has served Mr. Buffett well. He has famously purchased iconic American brands such as The Coca-Cola Co. (NYSE:KO), American Express Company (NYSE:AXP) and Wells Fargo & Co. (NYSE:WFC) when these companies dipped on poor news or unfavorable investor/market sentiment.

The thesis has been, and continues to be, that when such companies fall out of favor with investors, the strength of the brand and customer loyalty these companies have garnered over the years will inevitably result in a long-term recovery.

In most cases, Buffett has been right.

Buffett began purchasing his stake in the company in Q1 2016, when AAPL traded between $90 and $95. Shares have since rebounded significantly, with Berkshire’s holding having increased on the order of 30% to 50% since inception, as Berkshire has continued to buy shares on the way up.

With the market generally fearful of Apple’s long-term growth prospects in 2016, Mr. Buffett got greedy, adding to this position over the past year. Now, AAPL stock is in the top seven, which is a significant feat in such a short time.

What Will Warren Buffett’s Q2 Apple Stake Look Like?

Every investor and their mother wants to know: How much will Warren Buffett grow his position over the second quarter of 2017?

Will he grow his position?

The tech giant’s stock price has risen dramatically since Buffett first purchased shares, so much so that it’s worth asking whether AAPL still looks as much of a value now, and whether there are better opportunities elsewhere. (And if so, how much might he trim his position to pursue those opportunities?)

In contrast to his traditional buy-and-hold-forever model, Mr. Buffett has been “trimming the hedges” in a number of key positions he has held for years or decades, recently reducing or eliminating positions in iconic companies and key holdings such as Wal-Mart Stores Inc (NYSE:WMT) and International Business Machines Corp. (NYSE:IBM).

While Buffett has asserted his confidence in the continued long-term upside with respect to AAPL stock at current prices, at some point even the Oracle of Omaha may consider trimming his position as a defensive maneuver.

My take on Buffett’s likely perspective on AAPL stock at current levels is that the $202 price target issued by Drexel Hamilton is in line with his long-term target. Though, that may continue to increase over time as Apple grows its global market share.

Apple is now considered a “forever” company by Warren Buffett standards, so I wouldn’t stand in the way of the stock over the coming quarters. Those who do are welcome to sell their shares to Berkshire Hathaway; I’m sure Mr. Buffett will be happy to snap them up.

We’ll find out in August.

As of this writing, Chris MacDonald did not hold a position in any of the aforementioned securities.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.


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