Warren Buffet, wealthy entrepreneur, offloads 67% of Berkshire's Apple shares and invests heavily in a popular consumer company whose share value skyrocketed an astounding 7,000% since its initial public offering.
In the realm of financiers, nobody garners more interest from the investment sphere than billionaire Warren Buffett. Over nearly six decades as CEO of Berkshire Hathaway (BRK.A -0.31%) (BRK.B -0.59%), affectionately known as the "Sage of Omaha," Buffett has overseen an astounding cumulative return of over 5,660,000% on his company's Class A shares (BRK.A) by the close of November 14th.
Buffett's track record of surpassing major Wall Street indexes over prolonged periods has some investors eager to hop on his bandwagon. Given Form 13F filings with the Securities and Exchange Commission, this endeavor is relatively straightforward, thanks to institutional investors with assets over $100 million in value. These filings reveal which stocks major money managers have been purchasing or selling in the most recent quarter. The November 14th deadline marked the disclosure of trading activities for the September quarter-end.
Unlike other major players, who tend to acquire and sell stocks more equally, Buffett and his team at Berkshire Hathaway have been net sellers and highly selective buyers in recent quarters. The latest round of 13Fs provides insight into the top holdings that are being let go and welcomed with open arms.
Berkshire's top holding gets the boot
In line with Berkshire Hathaway's consolidated cash flow statements, Buffett and his team have made more sales than purchases for eight consecutive quarters (beginning Oct. 1, 2022), totaling an aggregate of $166.2 billion. No single stock comes close to accounting for a larger portion of this sum than the leading consumer brand Apple (AAPL 1.17%).
Over the preceding twelve months, up until September 30th, Berkshire Hathaway has sold 615,560,382 shares of Apple, which resulted in a dramatic reduction in Berkshire's stake in the second-largest company on Wall Street by 67%. It is worth noting that, despite this massive sale, Apple remains Berkshire's largest holding by a sizable $25 billion in market value.
During the annual shareholder meeting in early May, Buffett expressed the likelihood of a rising corporate income tax rate. Selling Apple stocks represented an opportunity for Berkshire to secure substantial unrealized gains at an advantageous tax rate.
However, with Donald Trump's victory in the presidency and both houses of Congress controlled by Republicans, corporate income tax hikes seem unlikely for at least the next four years. As a result, Apple's stock value has soared due to its AI aspirations, a development that Berkshire Hathaway appears to have missed out on substantial gains.
But there might be more to this selling spree than meets the eye.
Even when Buffett hinted at tax-related selling during Berkshire's annual shareholder meeting, it is possible that he may not be fully satisfied with Apple's valuation. Known for his fervent commitment to value investing, Apple currently trades at an impressive 38 times its trailing-12-month earnings. This valuation multiple is comparable to the S&P 500's Shiller price-to-earnings (P/E) ratio reaching its third-highest valuation multiple, dating back to January 1871.
Moreover, Apple's physical product sales have stagnated over the past two years. Although subscription services continue to grow robustly, there is a lukewarm demand for iPhones, Macs, iPads, and supporting accessories.
A new favorite for Warren Buffett
Despite being a prolific net seller in 2024, Buffett and his top investment advisors, Todd Combs and Ted Weschler, have made strategic and limited purchases. This includes bulking up their stake in the most sought-after reverse stock split, Sirius XM Holdings, as well as bolstering their position in property and casualty insurer Chubb, a secret holding of Berkshire Hathaway as of mid-May.
In the September quarter, Berkshire Hathaway engaged in minimal buying, with one notable exception. The largest acquisition was to establish a new position in the beloved fast-food restaurant chain, Domino's Pizza (DPZ -1.20%). The 1,277,256 shares purchased equated to roughly $550 million in market value, by the end of September.
Domino's Pizza has consistently been one of the top-performing stocks on Wall Street since its initial public offering (IPO) in 2004. From its debut on July 13, 2004, shares have soared an impressive 7,000%, factoring in stock dividends and the subsequent void left by Berkshire's 13F filing.
In December of the previous year, Domino's introduced a five-year plan known as "Hungry for MORE." The purpose behind "MORE" is to improve the company's operating efficiency and customer loyalty in the ensuing years.
Domino's "M" is all about crafting the "most delectable dishes," drawing inspiration from fresh menu ideas and maintaining consistency in food preparation processes. The "O" is centered around "operational brilliance," focusing on food uniformity and increasing productivity through its tech-driven, unique operating system. The "R" represents "recognized worth" and is connected to the company's rewards program, which aims to maintain customer loyalty to the brand. Lastly, the "E" stands for "elevating" the brand's value through partnerships with franchisees.
Warren Buffett values management teams that embrace both their triumphs and missteps. Domino's significant growth began in the early 2010s due to its honest apology advertising campaign. The company has never shied away from acknowledging past errors (like admitting that their pizza wasn't up to par) and has strengthened its relationship with customers thanks to its transparent marketing approach.
Buffett also appreciates businesses with shareholder-friendly capitalism strategies. Domino's has boosted its annual dividend payout consistently for over a decade and has bought back shares in all but a few quarters. A significant portion of Berkshire Hathaway's holdings comprises reliable dividend-paying stocks.
Though Domino's impressive return on investment is hard to dispute, its forward P/E ratio of 27 isn't financially modest. It'll be intriguing to observe whether Buffett and his team plan to expand on this investment in the coming quarters.
Investors looking to follow in Buffett's footsteps might consider purchasing shares of companies mentioned in Form 13F filings, as these filings reveal the stocks major money managers are buying or selling. Buffalo and his team at Berkshire Hathaway, despite being net sellers, have also been strategic buyers, such as their recent purchase of Domino's Pizza shares.
Buffett's team at Berkshire Hathaway has shown a preference for certain companies that demonstrate consistent performance, such as Domino's Pizza. Known for its impressive return on investment since its IPO in 2004, Domino's has also demonstrated shareholder-friendly strategies through consistent dividend payouts and share buybacks.
