Harriet Lefton

About the Author Harriet Lefton

Harriet originates from the UK where she worked as a journalist specializing in the metal markets. She graduated from the University of Cambridge before becoming a qualified UK lawyer.

Warren Buffett’s 4Q Biggest Trades: Apple Inc. (AAPL), Wal-Mart Stores Inc (WMT)

In the fourth-quarter Warren Buffet bought billion-dollar positions in Apple Inc. (NASDAQ:AAPL) but slashed his Wal-Mart (NYSE:WMT) holding by 90%. Buffett’s $148 billion fund now has Apple as its seventh biggest stock, 13F forms filed with the SEC and released on Feb 14 reveal. In Q4 Buffett’s Berkshire Hathaway fund, which has a $147 billion portfolio value, sold shares worth $900 million in retailer Walmart. The fund initiated its Walmart position in 2005 but has been slowly selling off the stock over the last year. Now it would not be surprising if Buffet completely eradicates his Walmart position in the near future. This is a dramatic turnaround for Buffett, known as the “Oracle of Omaha”. Why has he changed his position now? We take a closer look at these key Q4 moves.

Apple Inc. 

Buffett increased his holding in consumer giant Apple by 276.68%. The holding, which is now worth $6.64 billion, has made a gain since the last filing of 17.69%. In other words, Buffett has already made a substantial profit on his investment. Why have AAPL share prices risen? Apple released better-than-expected first quarter fiscal results which impressed the market with revenue hitting a record $78.4 billion and EPS of $3.36 comfortably beating analyst estimates by $0.15. iPhone demand continued to improve despite market fears that consumers would hold out on purchasing iPhones until the release of iPhone 8 later this year.

However, there is a slight danger that AAPL stock prices could fall back over the next 12 months. The average analyst price target on TipRanks is just $142.31 versus the current share price of $135.72. And most notably, price targets from top analysts Timothy Arcuri (Cowen & Co) and Mark Moskowitz (Barclays) both undercut the current share price by downsides of -0.53% and -9.37% respectively. Moskowitz believes that customers will increasingly be drawn to lower-priced versions of the iPhone, musing that “the era of must-have technology in smartphones [could have] peaked, potentially weighing on both Apple and the broader smartphone market.” 

Wal-Mart Stores

Warren Buffett reduced his position in Walmart by about 90% in 4Q16; his remaining shareholding in the stock is worth about $96 million. The market as a whole is cautious about the outlook for Walmart which is facing increased competition from e-commerce giants such as Amazon which has a market cap of $356 billion versus Walmart’s $296 billion. Walmart is trying to counter the competition by becoming an omni-channel retailer. The company has introduced free-two-day shipping and over the last 5 years it has snapped up over 15 e-commerce startups. Most recently Walmart announced the $3 billion acquisition of Jet.com in September 2016.

Still fears remain that it is simply too late for Walmart to break into the e-commerce market in any meaningful way. Former CEO of Walmart Mike Duke said back in 2012: “I wish we had moved faster. We’ve proven ourselves to be successful in many areas, and I simply wonder why we didn’t move more quickly. This is especially true for e-commerce.”

Ultimately, Buffett’s decision to sell the stock may perhaps be explained by this quote from 2005 when he predicted the downfall of US retailers Sears and Kmart: “Retailing is like shooting at a moving target,” Buffett said. “Turning around a retailer that has been slipping for a long time would be very difficult. Can you think of an example of a retailer that was successfully turned around?

TipRanks shows that both hedge fund managers and corporate insiders have strong sell ratings for the stock based on expert sentiment signals tracked over the last three months. For example, value investor and hedge fund manager Joel Greenblatt also reduced the position of $7 billion fund Gotham Asset Management in Walmart by 5.32% to $40.8 million. Bloggers however have a more bullish outlook saying that the stock is undervalued and that focused e-commerce investment could lead the company to better times.