Warren Buffett Is Selling Stocks at a Record Pace and Avoiding His Favorite Stock for the First Time Since 2018

Warren Buffett is commonly regarded as one of the most successful investors in American history. Shares of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) have increased more than 5,400,000% since he took control of the company in the mid-1960s, due in large part to savvy acquisitions and stock purchases he engineered. Meanwhile, the S&P 500 (SNPINDEX: ^GSPC) has returned about 37,500%.

Buffett reportedly manages 90% of Berkshire's investment portfolio, while his understudies Ted Weschler and Todd Combs manage the rest. Buffett is also permitted to repurchase Berkshire stock when he believes it's undervalued. So, we can assume Buffett was largely responsible for these decisions in the third quarter:

• Berkshire sold about 100 million shares of Apple (NASDAQ: AAPL) during the third quarter, such that Buffett has now slashed the company's stake in Apple stock by 67% year to date. However, Apple is still the largest position in Berkshire's portfolio.
• Berkshire did not repurchase any stock in the third quarter, breaking a six-year streak during which Buffett allocated $78 billion to buybacks. That sum makes Berkshire his favorite stock, and the lack of buybacks in the recent quarter suggests Buffett believes Berkshire shares are overvalued.
• Berkshire was a net seller of stocks during the third quarter, meaning Buffett and his fellow investment managers sold more stock than they bought. Indeed, Berkshire's net stock sales have exceeded $127 billion year to date, marking the most aggressive selling behavior in company history.

Importantly, Berkshire reported $325 billion in cash and short-term investments in U.S. Treasury bills on its balance sheet as of Sept. 30. That number, coupled with the aggressive stock sales, suggests Buffett is struggling to find buying opportunities. Here's what investors should know.

Is it time to sell Apple stock?

Apple has a strong market presence in several consumer electronics categories. Most important, it ranks second in smartphone shipments globally, but first in smartphone sales due to exceptional pricing power. The company also ranks first in smartwatch and tablet shipments, and it ranks fourth in personal computer (PC) shipments.

Apple has a booming services business that augments its products. The company only benefits once when someone buys an iPhone, but it can monetize iPhone users continuously with adjacent services like iCloud storage, App Store downloads and advertising, Apple Pay, and subscriptions like Apple TV . Additionally, services have higher margins than hardware products, meaning that business segment will likely be Apple's greatest source of profit over time.

Apple reported reasonably good financial results in the fourth quarter of fiscal 2024 (ended September 2024), beating estimates on the top and bottom lines. Total revenue increased 6% to $95 billion, reflecting sales growth of 4% and 12% in the products and services segments, respectively. And non-GAAP earnings jumped 12% to $1.64 per diluted share.

The biggest problem with Apple is its price tag. Wall Street expects the company's earnings to increase at 10% annually over the next three years. That makes the current valuation of 36.7 times earnings look expensive. Those figures give a PEG ratio of 3.7, a substantial premium to the three-year average of 2.7.

For that reason, current shareholders should consider reducing their exposure to Apple like Buffett. That is especially important for anyone with a significant portion of their portfolio invested in the company. Similarly, prospective investors interested in buying Apple stock should wait for a better entry point.

Image source: Getty Images.

Should investors avoid the stock market?

As mentioned, Berkshire Hathaway has been a net seller of stocks in 2024. Moreover, its net sales exceeded $127 billion during the nine-month period that ended in September, largely because the company has unloaded over 600 million shares of Apple year to date. To put that in context, Berkshire's net stock sales have never exceeded $25 billion in any calendar year.

Additionally, Berkshire reported a record $325 billion in cash and U.S. Treasury bills on its balance sheet in the September quarter. The combination of record net stock sales and a record cash position makes it clear that Buffett is struggling to find stocks at a reasonable price in the current market environment.

Indeed, the S&P 500 currently trades at 21.3 times forward earnings, a premium to the five-year average of 19.6 times forward earnings and the 10-year average of 18.1 times forward earnings, according to FactSet Research. That means the stock market is expensive by historical standards, so investors should proceed cautiously in the current environment.

However, I think it would be a mistake to interpret Warren Buffett's capital allocation decisions as a warning to completely avoid stocks. Berkshire has fewer options than the average investor because purchasing shares of smaller companies would have no impact on its bottom line. Buffett said as much in his last shareholder letter. "There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others."

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Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and FactSet Research Systems. The Motley Fool has a disclosure policy.