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Last month I sold most of my stake in Apple (NASDAQ:AAPL). I still have a smaller investment in the company outside of my stocks and shares ISA, but most of it is gone now.
Warren Buffett
It might seem like I'm just copying Warren Buffett, who has been cutting back Berkshire HathawayApple's stake in the company. And to be honest, if I didn't know, I'd probably accuse myself of doing the same thing.
But I won't. For one thing, the reasons Berkshire's CEO laid out at its annual shareholder meeting don't apply to me.
Buffett explained the decision to sell Apple shares in terms of tax considerations. Berkshire paid 21% of the tax on profits, compared with 35% in the past (and 52% before that).
In Buffett's view, taxes are unlikely to stay at that level. If that turns out to be correct, the sale gave Berkshire a way to earn a profit on its Apple investment that it would otherwise have lost in taxes.
In the UK, capital gains tax reform may be planned in the next budget, but I'm not (yet) worried about investments in my stocks and shares ISA from that perspective as the gains are tax-exempt.
Please note that tax treatment depends on each client's individual circumstances and may be subject to change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any type of tax advice. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decision.
However, I have another reason to be concerned about Apple, and that is enough to convince me that there are better opportunities for the capital I have in my ISA right now.
Antitrust
The concern I have is the antitrust issue. Apple is being sued by the US Department of Justice on the grounds that it uses unfair means to maintain its competitive position.
In my view, this is key to the stock's viability as an investment at current prices. Apple needs to grow its earnings over time to justify a price-to-earnings (P/E) multiple of around 35.
The most obvious way to achieve this is by increasing revenues in its Services division. Gross margins in this part of the business are 74%, compared with about 35% in the Products division.
However, growing services revenue depends on the number of iPhone users remaining stable or increasing over time, and the closed ecosystem Apple uses to maintain that is important.
From a legal perspective, I'm not sure what the merits of the Justice Department's case are. I've heard some legal experts say it seems impressive, but I'm not in a position to evaluate it myself.
Others may have a different opinion on this, but if I can't accurately assess the likelihood of a potentially significant threat, that's a big problem when it comes to buying a stock.
risk assessment
Apple clearly has plenty of positives from an investment perspective. Services revenue is at an all-time high and it appears well positioned to benefit from the rise of artificial intelligence (AI).
However, I think there is a lot of uncertainty surrounding the future of the company's competitive position, and that is key to the long-term outlook for the stock, in my opinion.
That's why I've been selling Apple shares from my stocks and shares ISA. In the current environment, I think there are more predictable investments available.