Apple investors may want to sit down for this, because while their greed gland juices were recently decapitated by Buffett’s 510 million fire sale - there’s now a silver lining that could present one of the most explosive buying sprees of the year.
(Source: Giphy)
In short, we all know that Buffett’s downsizing of his Apple holdings has been one of the most talked-about financial moves in recent events. And while he’s not exactly spilling the beans on why, let’s not forget that Apple still makes up a whopping 41% of Berkshire Hathaway’s portfolio. Meaning, he’s not exactly abandoning our boy Tim Cook just yet.
(Source: X)
However, while most cling to Buffett's investment decisions like it’s the word of God itself, there’s more to this story than meets the eye. Because, even though Apple’s price-to earnings ratio has soared from 16 to 32, indicating it’s no longer the bargain it once was, there’s still a massive opportunity lurking beneath the surface that some investors may not be aware of.
The catalyst? Index Rebalances baby.
(Source: Fortune)
You see, Buffett’s massive holdings of the stock meant that a ton of Apple’s value weren’t fully reflected or mirrored in the major stock indexes (Read: Buffett has been hoarding Apple shares like they’re toilet paper in 2020). But, now with his hundreds of millions of Apple shares in the wild, Apple’s influence in these indexes is set to increase, potentially sparking a buying frenzy as the stock indexes “re-adjust” the holding changes.
(Source: Giphy)
Keep in mind, this doesn’t happen everyday, it only happens quarterly, and now that north of 510 million Apple shares are back into market circulation, indexes like the S&P 500, Nasdaq, and the Dow will be forced to recognize the new market value.
For instance, Piper Sandler estimates that passive funds might need to buy up to $40 billion of Apple stock to match the new weighting. Which interestingly enough, is three times Apples average daily trading volume, resulting in a stampede of funds rushing in to mirror the readjustment.
(Source: Yahoo Finance)
As of right now, in the case of the S&P 500, only 94% of Apple's value is being considered pre-the rebalance. However, come next month when indexes readjust weightings, the valuation will increase to 100% consideration. And for a company that holds a market cap of $3 trillion, that little 6% increase has immense impact when it comes to share valuation.
In layman's terms? This rebalance could have a drastic impact on supply and demand economics as index funds (who manage trillions of dollars obvi), snap up shares, potentially driving the price higher. Think, if Apple were a concert, index rebalances are the equivalent of selling out the venue.
(Source: Giphy)
Now of course, despite some headwinds like declining iPhone sales in China, and a damper on market sentiment (thanks, Buffett), this still follows Apple’s strong financial showing last quarter. If you recall, Apple’s earnings per share cruised by estimates, as revenue topped $85.787 billion (crushing the $84.43 billion predicted by analysts).
(Source: The Guardian)
As expected, this not only boosted Apple’s stock price amid the global market’s wreaking havoc on investors (remember my “Apple goes cyclical” comments?) as the stock closed +8.81% on the week - but, Wall Street is officially mirroring this optimism as well.
For example, throughout the first 11 days of August, Bank of America, CFRA, and Goldman Sachs analysts have upgraded Apple’s price target to $256, $260, and $275 respectively. Meaning, according to them, the upside from Apple’s current trading price of $216.24 is holding a nice range between +22.01% and +24.24%.
(Source: Street Insider)
In addition to the fundamental aspects, of which David Einhorn (whom I’m surprised is still throwing his opinions around) says are “fundamentally broken”, our technical indicators are showing us strong bullish momentum for Apple going forward.
Especially as 11 out of 15 moving average metrics are screaming “buy”.
So with that said, and all things considered - while Buffett’s selling might look scarier than a clown at midnight, the silver lining is that the aftershock is set to ignite a massive opportunity in the coming days. Sure, it’s no secret Apple is facing some challenges, including tepid growth, and declining sales in certain regions, but with the AI momentum it has, combined with index funds snapping up shares to rebalance - Apple's price could see a major boost.
(Source: Giphy)
In the end, if you’ve recently turned sour on this tech behemoth, I’d highly suggest thinking again. Of course, in no way shape or form am I saying to go full send “YOLO” here. All I’m doing is giving you the clear cut facts, and at the end of the day it’s up to you and your due diligence to see what’s right for you.
But still, sometimes some of the best moves are the ones you don’t see coming, and in the wake of Buffett’s apparent “panic sell” - the vast majority of investors are definitely not seeing the potential this mass index rebalance could have on Apple shares. So with that said, you’re welcome, and I hope every single one of you has a fantastic Sunday! Stay frosty, friends….
Stocks.News holds positions in Apple as mentioned in the article.
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