Cathie Wood’s ARK Invest dumped Apple stock only a few weeks before Warren Buffett’s Berkshire Hathaway reports its first quarter holdings. Could this be a bearish sign?
An eventful week in the markets has come to an end. While inflation concerns leading to a market-wide selloff impacted Apple stock price ($AAPL) the most, at least one news-worthy development flew mostly under the radar: the large disposal of Apple shares by investment rock star Cathie Wood’s ARK Invest.
The dumping of nearly 88,000 AAPL shares worth $10.8 million on Monday, May 10, precedes by about three weeks the anticipated announcement of Warren Buffett’s Berkshire Hathaway’s first quarter portfolio holdings.
Could ARK’s bearishness towards Apple stock be shared by the Oracle of Omaha, possibly leading to deteriorating investor sentiment? Or will Buffett and team remain “as bullish as it gets”on AAPL?
Wood: Apple stock = cash-like position
My best guess is that ARK Invest’s recent selling of Apple shares does not signal a potential change in Berkshire’s investment thesis on the stock. In fact, it may represent quite the opposite.
Cathie Wood has been clear about why she does not invest more heavily in FAAMG stocks. Her following quote from early 2021 hints at why ARK has just trimmed its Apple position by one-third:
“What would encourage us to move back [into FAAMG] is a continuation of what we are seeing now, so that some of our valuations become stretched beyond our minimum hurdle rate of return. We would move back into some of the FAAMGs because we would be treating them essentially as cash-like instruments for our strategy.”
The above explanation was offered in January, when high growth and high valuation stocks were on fire. On the heels of price strength, it would make sense for Ms. Wood to sell some of her highflyers and “park” money in established tech names, like Apple.
Fast forward a few months, and the opposite has been happening in the market. With tech having sold off across the board in the past several weeks, ARK is probably coming “off the sidelines” (not cash in this case, but FAAMG) and putting money back into high growth following price weakness. This is probably what best explains the investment firm’s recent selling of Apple shares.
Buffett: more likely to buy Apple on the dip
In a way, growth investor Cathie Wood and value mogul Warren Buffett seem to share a similar appreciation for cheap stocks. The difference is that, to Ms. Wood, Apple is a defense play. To Mr. Buffett, Apple is more of an offense move.
Apple shares have been down nearly 13% from the late January peak. Meanwhile, current-year valuations have dropped from a current-year P/E of 30 times three months ago to 24 times now. To a value investor like Warren Buffett, this could be a compelling set up to accumulate shares.
The same way that Cathie Wood moved money from Apple to stocks like Coinbase and DraftKings earlier this week, Warren Buffett may have reallocated away from more defensive positions into Apple in the most recent quarter.
We will know for sure in early June, when Berkshire Hathaway discloses its positions.