Midway through each quarter, we get numerous filings from institutional investors on their holdings at the previous quarter. On Wednesday, we got some interesting news from Warren Buffett regarding two of his major tech sector holdings. The Oracle of Omaha is clearly placing his bet for the future on one tech giant, as opposed to one he used to favor.
As detailed by CNBC after the close, Berkshire Hathaway (BRK.A, BRK.B) has increased its Apple (AAPL) holdings by more than 23%. That accounts to more than 31 million shares in the quarter. At the end of 2017, that resulted in a total holding of more than 165.3 million shares, which would be almost $27.9 billion as of the last closing price of 2017, which coincidentally is just around where Apple shares are trading now. Buffett's ownership percentage is now more than 3% of Apple, which likely will increase as the company's buyback continues.
On the flip side, Buffett has nearly exited all of his position in IBM (IBM), which for many years was one of his core holdings. As I detailed in an article last May, the IBM position was around 81 million shares at the end of 2016. As CNBC detailed, that stake is now down to just 2.05 million shares after selling off roughly 94.5% of the position in Q4 2017. While Berkshire was still the 4th largest IBM shareholder at the end of Q3 2017, that is no longer the case.
Last year, Buffett had talked about IBM being a strong company, but also being up against strong competitors as well. While IBM finally reported a revenue increase for the first time in 23 quarters recently, the stock has been dead money for some time. Just take a look at the five-year chart below showing Apple against IBM for the past five years.
(Source: Yahoo! Finance)
As someone who currently covers both names, I can see why an investor would favor Apple. While IBM currently has a higher dividend yield, Apple offers more projected short-term growth and has a much larger available cash pile. For instance, Apple is projected for about 15% revenue growth and 25% earnings in its current fiscal period, while IBM is projected for just over 1% revenue growth and for earnings per share to be flat, despite the company's buyback. IBM may actually report a net income decline this year, while Apple is looking to report record quarterly periods.
Warren Buffett made his bet on the future of technology as 2017 ended, and that means buying lots more of Apple and selling almost all of his IBM position. Berkshire Hathaway was already the 4th largest Apple shareholder, and it was the largest IBM shareholder until last year's sales started. Will investors follow Buffett out of IBM and into Apple? I'm curious to hear your thoughts on these two names.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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