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Berkshire Hathaway has taken some profits on two of its top holdings.
00:00 Introduction
00:56 Bank of America BAC
01:28 Apple AAPL
Susan Dziubinski: I’m Susan Dziubinski with Morningstar. According to recent regulatory filings, Berkshire Hathaway BRK.A BRK.B sold approximately 390 million shares of Apple AAPL stock during the second quarter and more than 90 million shares of Bank of America BAC stock between mid-July and early August. The sales are notable, because Apple and Bank of America are top holdings in Berkshire Hathaway’s portfolio.
What should investors make of Berkshire’s move? Well, perhaps Berkshire was looking to increase its cash position and decided to take some chips off the table on two of its largest holdings, given their strong performance. Apple stock rallied hard in the second quarter, advancing 24% for the quarter. And Bank of America stock was up more than 19% during the first half of 2024. As a result, we shouldn’t necessarily interpret Berkshire’s sales as a vote of “no confidence” in either company.
So, how do Apple and Bank of America look from Morningstar’s perspective?
With Bank of America, we thought second-quarter numbers looked good, and we were encouraged by the bank’s net interest income outlook for the rest of the year. Overall, we consider Bank of America to be a preeminent banking franchise that’s in sound financial health. And as the second-largest US money center bank by assets, we think Bank of America has carved out a wide economic moat. We think shares are about fairly valued—neither a screaming buy nor a screaming sell. We assign Bank of America stock a $39.50 fair value estimate.
What about Apple? After earnings, we raised our fair value estimate on Apple stock to $185 from $170, because we raised our medium-term iPhone forecast. We continue to expect strong revenue growth in fiscal 2025 as users upgrade their iPhones to take advantage of Apple’s generative artificial intelligence features, requiring the latest and greatest hardware. We think Apple has also carved out a wide economic moat; its iOS ecosystem entrenches customers with software capabilities and integration across devices, leading to high switching costs. The stock looks a little overpriced—we think shares are worth $185—but we think Apple is certainly a high-quality name to buy if the price pulls back far enough.
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Morningstar analysts William Kerwin and Suryansh Sharma provided the research behind this segment.
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Susan Dziubinski https://www.morningstar.com/people/susan-dziubinski
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