Warren Buffett Sells Apple Stock and Buys an Industry-Leading Stock Up 3,400% Since Its IPO

Warren Buffett oversees the vast majority of Berkshire Hathaway's equity holdings, while fellow investment managers Todd Combs and Ted Weschler handle a small percentage of the $299 billion portfolio. Berkshire doesn't disclose which trades are made by which person, but Buffett almost certainly manages the largest positions like Apple (NASDAQ: AAPL).

Berkshire had 50% of its 41-stock portfolio invested in Apple as of December 2023. But Buffett sold 605 million shares through the first three quarters of last year, such that Berkshire had just 26% of its portfolio invested in Apple as of September 2024. The timing of those sales is detailed below:

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• Q1 2024: 116 million shares
• Q2 2024: 389 million shares
• Q3 2024: 100 million shares

Meanwhile, during the third quarter, Berkshire started a small position in Domino's Pizza (NASDAQ: DPZ). That stock is up 3,400% since its initial public offering (IPO) in July 2004 but has struggled more recently. Shares have advanced only 8% in the last three years despite a 35% gain in the S&P 500 (SNPINDEX: ^GSPC).

Here's what investors need to know.

1. Apple

Warren Buffett once called Apple the "best business" in the world, and he has referred to its flagship iPhone as "one of the greatest products" of all time. Apple has built uncommon brand authority through design expertise that spans hardware and software, which gives the company pricing power. Apple is the revenue leader in smartphones, and the average selling price for iPhones is triple that of Samsung smartphones.

However, Apple is also surrounded by headwinds. Its smartphone market share has plummeted in China due to competition from local manufacturers. Also, Apple earns about $20 billion in annual services revenue from search agreements with Alphabet-subsidiary Google, but a federal judge may terminate that practice later this year. Finally, Apple Intelligence -- a suite of artificial intelligence (AI) features for newer iPhone models -- has so far failed to move the needle for the company.

Apple reported lackluster financial results in the first quarter of fiscal 2025, which ended in December 2024. Total revenue increased 4% to $124 billion, but iPhone sales fell despite many analysts predicting an upgrade cycle would be driven by Apple Intelligence. On the bright side, GAAP earnings increased 10% to $2.40 per diluted share due to strong sales growth in high-margin services and stock buybacks.

Wall Street expects Apple's earnings to grow 10% annually through fiscal 2026, which ends in September 2026. That makes the current valuation of 33 times earnings look expensive. While Apple stock returned 25% in the last year, its price-to-earnings ratio rose 27% during that period. That means Apple's price appreciation was driven solely by investor optimism, not earnings growth.

For those reasons, prospective investors should pass on this stock until a better entry point presents itself. Current shareholders should consider trimming their positions, especially if those positions account for a large percentage of their portfolios. I doubt Apple can beat the S&P 500 over the next three to five years from its current valuation.

2. Domino's Pizza

Domino's is the largest pizza company in the world, as measured by sales and stores. The company has also been a consistent industry leader in the delivery space. It introduced the 30-minute guarantee in 1984, began accepting online orders in 2004, and debuted the first delivery vehicles with built-in ovens in 2016, among other innovations.

The combination of scale and vertical integration affords Domino's a cost advantage that rivals find difficult to match. The company has earned a reputation for good value by passing those cost savings to customers and has leaned into that reputation as consumers have struggled with inflation. In 2023, the company revamped its loyalty program and introduced its "Hungry for More" strategy.

Consequently, Domino's has consistently outperformed its quick-service pizza-restaurant peers. For instance, Domino's reported positive growth in same-store sales during the last three quarters, while Papa John's and Yum! Brands subsidiary Pizza Hut saw same-store sales decline in each of those quarters.

Domino's reported mixed results in the third quarter. Revenue increased 5% to $1 billion, driven by same-store sales growth in the U.S. and international markets. However, GAAP net income was flat at $4.19 per diluted share due to a higher tax rate. The company added 72 stores to its global footprint, pushing the total count above 21,000.

Looking ahead, Domino's expects retail sales growth of at least 7% annually and operating income growth of at least 8% annually through 2028 as part of its "Hungry for More" strategy. However, Wall Street expects Domino's earnings to increase by 6% annually through 2025. That consensus estimate leaves room for upside, but the current valuation of 29 times earnings still looks expensive. Investors should wait for a more attractive buying opportunity.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, Berkshire Hathaway, and Domino's Pizza. The Motley Fool has a disclosure policy.