Warren Buffett, the legendary investor and CEO of Berkshire Hathaway, has made a significant shift in his investment strategy. According to recent SEC filings, Buffett sold approximately half of Berkshire Hathaway’s stake in Apple, raising around $80 billion in cash. Apple has provided investors with substantial returns over the past few decades, mainly due to the success of the iPhone.
However, the company’s revenue growth has stagnated in recent years amid smartphone market saturation. Fewer people are upgrading to new iPhones, and Apple has struggled to innovate and convince consumers to buy new phones while battling a recession in China. Buffett, known for his focus on valuation, appears to find Apple less attractive at its current price-to-earnings ratio of nearly 35, which is considered high for a company with slowing growth.
Instead, Buffett’s largest purchase in the second quarter was Occidental Petroleum. Berkshire Hathaway now owns 27.25% of Occidental’s outstanding shares, making it the company’s largest shareholder. Several factors make Occidental appealing to Buffett.
Buffett’s new investment strategy
First, it trades at a P/E of 12.6, much lower than Apple’s. Second, with over 82% of its production from domestic sources, Occidental is less exposed to geopolitical risks than other oil companies.
Third, investing in Occidental allows Berkshire to hedge against rising oil prices, which could negatively impact other parts of its portfolio, such as its railroad subsidiary. Buffett’s moves also highlight the importance of the risk-free rate and its impact on investment decisions. Berkshire Hathaway currently has nearly $300 billion in cash, primarily held in short-term U.S. Treasury bills offering a yield of around 5% annually.
Comparing this to Apple’s earnings yield of 2.9% (the inverse of its P/E ratio), Buffett appears to prefer Treasury bills over Apple stock for their higher yield and lower risk. In contrast, Occidental’s earnings yield stands at 7.9%, making it a more attractive option than both Apple stock and Treasury bills. This comparison likely played a significant role in Buffett’s decision to sell Apple shares and buy more Occidental Petroleum.
As always, Buffett’s investment decisions offer valuable insights for other investors looking to navigate the complexities of the stock market. His strategic shift from Apple to Occidental Petroleum underscores his focus on valuation, earnings potential, and risk management.
