Apple | Fundamental Analysis

Berkshire Hathaway, renowned for its focus on long-term investments, has recently made a substantial move by selling a significant portion of its Apple shares. Specifically, under Warren Buffett's leadership, the company has divested over 500 million shares in the first half of the year, representing more than half of its Apple holdings.

Such a large-scale sale by Berkshire Hathaway is notable, especially given its previously substantial stake in Apple. However, this development does not necessarily mean that investors should follow suit and sell their Apple shares. Decisions made by Warren Buffett may not align with every investor's situation. It’s crucial to evaluate Apple's prospects independently before making any decisions.

Apple's iPhone remains the cornerstone of its business, contributing 52% to the company's year-to-date revenue. Yet, iPhone sales have faced challenges, including a 1% decline in the fiscal third quarter ending June 29. This decline is partly attributed to increased competition from lower-priced smartphones in China, which has affected Apple's market share in the region. Overall sales in China fell by 6.5% to $14.7 billion in the same quarter, with weak iPhone sales being a significant factor. Apple's global market share for iPhones also dropped to 15.8% in the June quarter, down 1.5 percentage points from the previous quarter.

Despite these setbacks, Apple’s services division has shown robust growth. This segment, encompassing advertising, tech support, payment services, and the App Store, grew by over 14% to $24.2 billion in the latest quarter. Services contribute a much higher gross margin compared to product sales, with a 74% gross margin compared to 35.3% for products.

However, Apple’s services business is not without its issues. The company faces scrutiny from regulators, including the US Department of Justice and various state attorneys general, over allegations of monopolistic practices. These include claims of imposing restrictive contracts on app developers and limiting digital payment options, which could introduce uncertainty into the future of Apple's high-margin services.

As such, while Berkshire Hathaway’s decision to reduce its Apple stake is significant, investors should carefully assess Apple's current performance and future outlook before making any decisions regarding their own investments.

Apple's stock has demonstrated strong performance in recent years, with a 24.3% gain over the past year, outperforming the S&P 500 index by 2.6 percentage points. However, this significant appreciation has led to a higher valuation. The price-to-earnings (P/E) ratio has risen from approximately 30 to 34, compared to a median P/E of 19 over the past decade. This current P/E also exceeds the S&P 500's ratio of 28.

The market clearly anticipates rapid growth in Apple's sales and profits. Although sales accelerated in the third quarter, they increased by just 5%. The upcoming release of the new iPhone, featuring an artificial intelligence component, is expected to drive growth, but its impact on sales remains uncertain.

Meanwhile, Apple's shares are trading at a premium valuation amidst sluggish iPhone sales and ongoing government antitrust investigations. Despite its status as a major industry player, Apple is no longer delivering exceptional growth.

In light of these factors, it may be prudent to consider following Berkshire Hathaway's approach and reevaluating one's Apple investment. This could involve either reducing your position in Apple, as Buffett has done or selling your shares entirely if you're dissatisfied with the company's current growth trajectory.

As long as the price is above 220.00, follow the recommendations below:

If the level of 220.00 is broken-down , follow the recommendations below: