In the June quarter of 2024, Warren Buffett acquired $345 million in Berkshire Hathaway shares. This brings the cumulative total of stock buybacks to $2.6 billion for the year so far and nearly $78 billion since 2018. During the same quarter, Buffett divested 389 million shares of Apple.
Buffett made his initial investment in Apple back in 2016, and by the end of 2017, it had grown into the largest holding within Berkshire’s portfolio. Despite his respect for Tim Cook, the CEO of Apple, Buffett decreased his Apple holdings by 13% in the March quarter followed by another reduction of 49% in the June quarter. The choice to sell Apple shares was influenced, in part, by expectations of rising corporate tax rates.
Buffett suggests that increased taxes are probable as a response to the unprecedented deficit experienced by the U.S. federal government in recent years. Through the sale of Apple shares, Berkshire seeks to sidestep the burdens of higher taxes on potential future investment profits.
Buffett amplifies Berkshire’s stock repurchase efforts
Another factor in selling Apple is its valuation. Analysts anticipate that Apple’s earnings will expand at an annual rate of 8.6% over the next three years, rendering its current valuation of 34.4 times earnings relatively high. Consequently, Buffett has redirected his efforts toward buying back Berkshire Hathaway shares.
The stock repurchase program implemented by the company allows Buffett to reacquire shares whenever he perceives them to be undervalued. Berkshire stands out due to its insurance operations and the judicious investment strategies employed by Buffett and his team, Todd Combs and Ted Weschler. The company is a frontrunner in insurance float, which denotes the premiums collected that are yet to be disbursed in claims.
Buffett has pointed out that Berkshire has incurred “less than nothing” in costs to build up its float, enabling significant value creation for shareholders. Projections indicate that Berkshire’s operating earnings will rise at an annual rate of 17% through 2027, suggesting that the current valuation of 23.3 times operating earnings appears justified. Investors with a long-term perspective may find it worthwhile to consider acquiring a small stake in Berkshire, particularly as Buffett is expected to continue share buybacks in the current quarter.
