Another quarter, another Apple (NASDAQ: AAPL) sale from Warren Buffett. The legendary investor sold a massive chunk of Apple stock yet again in the third quarter, estimated to be worth more than $20 billion, or 100 million shares. Berkshire Hathaway -- the company Buffett controls -- still owns $70 billion of Apple stock, but it is now a much smaller position than at the start of the year.
Why is Buffett selling? This article will get into the likely culprit a little later. More importantly, what is Buffett buying today? Not much, but Berkshire Hathaway did take a stab and acquired 3.5% of Domino's Pizza (NYSE: DPZ) last quarter. Here's why the company may look attractive to Buffett and his investment team at the moment.
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The Apple investment has generated over $100 billion in capital gains for Berkshire Hathaway. Throughout 2024, Buffett has begun to realize a lot of these gains, raising Berkshire Hathaway's cash position to more than $300 billion.
He is likely shying away from Apple as such a large position in the Berkshire Hathaway portfolio for a simple reason: valuation. It has nothing to do with market timing, or Buffett making a bet that the stock market is going to crash anytime soon. The stock just looks overvalued at these prices.
And it is hard to disagree with this sentiment. At current prices, Apple is trading at a price-to-earnings ratio (P/E) of 37. While not an egregious earnings ratio for a high-growth stock, Apple isn't a fast grower anymore. In fact, it is barely growing at all, and at a significantly slower pace than inflation.
In the last three years, Apple's revenue is only up 3% on a cumulative basis. Buffett is likely concerned about the stock underperforming due to this tepid growth combined with a high earnings ratio. It is not like Apple is now a bad business; just one where the stock is priced to perfection. It is hard to compound your capital owning something like this.
On the other side of the spectrum, Berkshire Hathaway initiated a new position in Domino's Pizza last quarter, now owning a sizable chunk of the business. This is not nearly as large of a position as Apple, but it is curious that Berkshire Hathaway is buying the stock now.
Buffett famously likes the capital-light franchising model for restaurants, and has been an ardent fan of McDonald's business success (along with its food) for a long time. Domino's Pizza runs a similar franchising model for its pizza shops.