Warren Buffett has decided to keep his Apple shares unchanged through the fourth quarter. The billionaire’s Berkshire Hathaway still holds its largest equity investment in Apple, worth around $75 billion. This move signals Buffett’s confidence in Apple’s future prospects.
Apple remains one of the largest companies globally. It reported $396 billion in revenue over the past 12 months. After experiencing stagnation post-2021, the tech giant has managed to return to growth.
It had a 4% year-over-year revenue increase last quarter, reaching $124.3 billion. The company’s operating margin also hit a record 32%. Much of this growth is driven by Apple’s software services division, which has higher margins.
Service revenues climbed to over $26 billion last quarter from $23 billion in the previous year. Apple’s consistent share repurchase program has also significantly benefited shareholders. It has propelled dividend payments up by 110% over the past decade.
Despite these successes, Apple faces several challenges. To stimulate its hardware division, Apple plans to release the lower-priced iPhone 16E at $600. This could potentially draw more customers.
Buffett’s steadfast apple strategy
However, newer products such as the Watch, AirPods, and Vision Pro have seen slower growth. The Vision Pro was even discontinued due to poor sales.
In China, Apple has struggled against local competitors. This has led to continuous revenue declines in the region. Antitrust issues present another significant hurdle.
There are concerns about Apple’s App Store fees and search engine distribution deals. Legal actions could notably impact Apple’s profit margins if these revenue streams are curtailed. Apple’s robust business model and strong brand make it a resilient and profitable company.
However, its current price-to-earnings ratio of 37 is considerably higher than the market average. This indicates that the stock may be overvalued. Potential antitrust rulings could also jeopardize a substantial portion of its earnings.
For new investors, Apple might not be the best addition to a portfolio at its current valuation. But for existing shareholders, especially those who purchased shares at lower prices, holding onto the stock to continue enjoying growing dividends might be wise. Selling the stock could also trigger tax liabilities.
While Buffett’s decision to hold onto Apple might suggest confidence in the company, new investors should proceed with caution given the high stock valuation and looming legal challenges.
Image Credits: Photo by Dimitri Karastelev on Unsplash
