The Oracle of Omaha is stepping down soon, and big changes could be on the horizon for Berkshire Hathaway’s portfolio! While some holdings are sacred, whispers suggest one tech giant might not fit the new leader’s value-driven approach. Could a massive divestment be in the cards?

As Warren Buffett prepares to transition from his CEO role at Berkshire Hathaway in approximately four months, the investment world is keenly observing what changes his successor, Greg Abel, might implement within the conglomerate’s vast $298 billion investment portfolio. While Abel has publicly committed to building upon the robust foundation laid by Buffett and the late Charlie Munger, it is widely anticipated that his unique approach to value investing could lead to significant portfolio adjustments.

Buffett, in his characteristic transparency, has explicitly labeled a select group of eight stocks as “indefinite holdings” in his annual letter to shareholders. These are the sacred cows, virtually off-limits for divestment, and represent the cornerstone of Berkshire Hathaway’s long-term investment strategy. These holdings are deeply embedded in the company’s philosophy and are expected to remain untouched under Abel’s stewardship, reflecting their enduring value and alignment with Berkshire’s core principles.

Among these long-tenured holdings are iconic brands like Coca-Cola and American Express, acquired by Berkshire Hathaway in 1988 and 1991, respectively. The rationale for their perpetual retention is compelling: exceptionally low cost bases, approximately $3.25 per share for Coca-Cola and $8.49 for American Express. These historically astute acquisitions translate into staggering annual returns on cost, nearly 63% for Coca-Cola and close to 39% for American Express, underscoring the formidable power of patient, long-term investment strategy.

Beyond these stalwarts, the Oracle of Omaha also considers integrated energy giant Occidental Petroleum a “forever holding,” despite its relatively recent inclusion in the portfolio. Similarly, significant stakes ranging from 8.5% to 9.8% in five major Japanese trading houses, known as “sogo shosha” — Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo — are also deemed indefinite holdings, further diversifying Berkshire’s strategic portfolio changes.

However, while Warren Buffett’s “forever holdings” appear immutable, this certainty does not necessarily extend to all of Berkshire Hathaway’s other core investments. Given that Greg Abel shares many of Buffett’s fundamental investment values, particularly an “insatiable desire for value stocks,” it raises questions about the future of Berkshire’s largest holding: Apple. The sheer size of this Apple stock position, coupled with evolving market dynamics, presents a unique challenge for the incoming CEO.

Warren Buffett’s initial foray into Apple stock during the first quarter of 2016 was a masterclass in opportunistic value investing. He acquired shares when the technology giant’s trailing-12-month (TTM) P/E ratio was in the low teens, representing a significant discount for a company of Apple’s caliber. This strategic entry point aligned perfectly with Buffett’s philosophy of purchasing “wonderful businesses at a fair price,” ensuring a substantial margin of safety.

Today, the landscape for Apple stock is markedly different. The company’s net income has faced headwinds over the past three years, yet its TTM P/E ratio has surged to nearly 35. For a value investor like Greg Abel, justifying 21.3% of Berkshire’s invested assets tied up in a company with such a historically high valuation and limited growth prospects could prove challenging. This stark contrast between purchase price and current valuation forms the crux of the potential portfolio changes under new leadership.

Therefore, as Warren Buffett relinquishes his CEO duties, it would not be surprising to see a substantial portion, if not all, of Berkshire’s Apple stock stake divestment. This potential move would signify Greg Abel’s commitment to his own rigorous investment strategy and a willingness to reshape the portfolio, even by parting with a significant holding that no longer perfectly aligns with the stringent criteria for deep value investments.