Warren Buffett's Berkshire Hathaway is selling about half of its stake in Apple and increasing its cash stockpile to almost $277 billion, according to figures released Saturday.
Berkshire's quarterly report suggests that the 93-year-old Buffett, one of the world's most revered investors, is growing wary that stock market valuations have gotten too high, or that the broader U.S. economy may be in a precarious position.
A stock market selloff on Friday followed a weaker-than-expected jobs report on Thursday, which sparked concerns the economy is heading for a recession and that the Federal Reserve may have waited too long to cut interest rates in its bid to achieve a "soft landing" to this inflationary cycle.
"If you look at the entire Berkshire picture and the macroeconomic data, a safe conclusion is that Berkshire is getting defensive," said Cathy Seifert, an analyst at CFRA Research who rates Berkshire a "buy."
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Dan Ives, managing director for equity research at Wedbush Securities, cautioned that Apple remains Berkshire's largest holding by far and that the firm paring back its stake in the tech giant isn't necessarily a precursor to bad economic news.
"We note that today Berkshire still has Apple as its #1 position and is more than double its next biggest position, Bank of America, at roughly $41 billion," he wrote. "While the bears will clearly run with this news and narrative coming off a brutal Friday selloff in tech stock, we strongly caution that Buffett is a core believer in Apple and we do not view this as a smoke signal for bad news ahead."
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Berkshire's cash position grew to $276.9 billion as of June 30 from a then-record $189 billion three months earlier, largely because Berkshire sold a net $75.5 billion of stocks. It sold about 390 million Apple shares in the second quarter, on top of 115 million sold from January to March, as the iPhone maker's stock price rose 23%. Berkshire still owned about 400 million shares worth $84.2 billion as of June 30.
At Berkshire's annual meeting in May, Buffett explained that despite the company cutting its stake in Apple, he still expects it to be its largest holding at the end of this year.
"We have sold shares and I would say that at the end of the year I would think it extremely likely that Apple is the largest common stock holding we have," Buffett said.
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Buffett explained that he views building the company's cash position as a better alternative at the present time than buying more stocks. He also touched on the tax consequences of selling Apple stock at a time when capital gains tax rates are lower than they have been historically and when large federal budget deficits could cause those rates to rise in the future.
"I don't mind at all under current conditions building the cash position. I think when I look at the alternative of what's available in the equity markets and I look at the composition of what's going on in the world, we find it quite attractive," Buffett said.
"Almost everybody I know pays a lot more attention to not paying taxes than I think they should. We don't mind paying taxes at Berkshire, and we are paying a 21% federal rate on the gains we're taking in Apple and that rate was 35% not too long ago, and it's been 52% in the past when I've been operating," he added.
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"It doesn't bother me in the least to write that check and I would really hope that with all that America has done for all of you, it shouldn't bother you that we do it and if I'm doing it at 21%, and we're doing it at a lot higher percentage later on, I don't think you'll actually mind that we sold a little Apple this year," Buffett said.
Reuters contributed to this report.
