Time to Sell Warren Buffett “Magnificent Seven” Stock Before 2024?

Magnificent Seven

If you’re considering selling one of Buffett’s “Magnificent Seven” stocks, it’s crucial to assess the reasons behind it. Has something fundamentally changed with the company that could affect its long-term prospects? Are there shifts in the industry or economy that might impact its performance?

Consider reviewing the company’s financial health, its competitive position, management changes, and any relevant news or developments. Also, think about your own financial goals and whether selling aligns with your investment strategy.

Warren Buffett’s investment track record speaks volumes, and Berkshire Hathaway’s recent triumph with Apple demonstrates his enduring prowess. Over the past five years, Apple’s stock has soared by a staggering 384%, eclipsing the Nasdaq Composite index’s 125% gain. Many investors might naturally view this as a solid reason to continue holding onto Apple.

However, my perspective differs. I believe it might be a prudent move to consider selling Apple stock before 2024. Here’s why:

Evaluating the Investment Scenario Before deeming a stock worthy of long-term investment, it’s crucial to assess its potential for future returns. Taking a closer look at Apple’s position, I find it challenging to identify substantial reasons supporting its capability to outpace the market in the long run—a fundamental objective in active investing.

Apple stands as a mature company, possibly seeing the end of its era of rapid sales growth. In its fiscal 2023, revenue dipped by 2.8%, contrasting sharply with the double-digit percentage revenue growth reported by almost all the other “Magnificent Seven” companies in their latest quarters. Tesla was the only exception, with a 9% sales increase in Q3.

Moreover, Apple continues to rely heavily on the iPhone, contributing over 50% of its revenue. This reliance on a product that might have reached saturation in major markets doesn’t bode well for substantial gains. Unless Apple introduces a groundbreaking product that significantly impacts its financial performance, expectations for the company’s growth should likely be tempered.

Adding to this, Apple’s current price-to-earnings ratio of 31.8 surpasses its 10-year average ratio of 20.7. From this perspective, it’s reasonable to consider the stock overvalued presently, potentially hindering strong returns in the future.

Buffett is staying put with Magnificent Seven

Buffett’s Position and Possible Reasons One might argue against my viewpoint by highlighting Buffett and Berkshire Hathaway’s significant stake in Apple, currently owning 5.9% valued at $178 billion. Buffett appears unwavering in his commitment to retain this position, likely due to several reasons.

Berkshire Hathaway benefits from substantial quarterly dividend payouts and a growing equity stake, courtesy of Apple’s massive share buybacks. Moreover, exiting the position could trigger a substantial tax burden, which could be deferred through compounding.

Buffett’s challenge in finding lucrative investment opportunities is evident from Berkshire Hathaway’s $157 billion cash balance as of September 30. Exiting the Apple position would substantially increase this cash reserve.

Buffett’s persistence might also stem from a belief that Apple remains a wise investment, despite its size and steep valuation—potentially considering it a perpetual investment.

The tax burden might also be an issue. Should the conglomerate exit its position, it would be required to pay a hefty sum to the IRS, something that can be deferred through the power of compounding.

Considering Your Position For individual investors, independent analysis is crucial. Apple’s success is undeniable, yet based on factual observations, I find it challenging to anticipate exceptional returns in the coming years.

Ultimately, it’s a decision best made after thorough research and understanding of the company’s current standing and future potential, rather than just attempting to time the market. Consulting with a financial advisor can also provide valuable insights tailored to your specific situation and goals.

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