Warren Buffett is one of the biggest investors in his company Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) is one of the best stock performers ever. That’s why investors are watching Berkshire’s stock purchases and sales so closely.
By law, Berkshire must report its shareholdings in a 13F filing no later than 45 days after the quarter end, which occurred on November 14 for the third quarter of the year. Investors have been eagerly awaiting this report as Berkshire has been stockpiling cash and not buying too many shares for most of the year. That theme seemingly continued into the third quarter.
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However, Berkshire disclosed a number of notable transactions in its 13F that investors were unaware of. Buffett dumped it Floor & Decoration (NYSE: FND) holdings and started a new stake in a long-lived and storied pizza franchise.
Berkshire first bought a stake in specialty retailer Floor & Decor in the third quarter of 2021, adding shares in the fourth quarter of 2021 and the first quarter of 2022. However, Buffett started to sour on the company in the second quarter of 2024 and sold nearly 17% of Berkshire’s stock before a full exit in the third quarter. It was never a huge position for Berkshire; it represented just 0.1% of his roughly $295 billion stock portfolio.
Floor & Decor offers different types of floors, including tiles, wood and stone. The company has grown a lot since going public in 2000. But the stock is down about 7% this year—not exactly the performance you’d look for in a bull market. The company has struggled as major home improvement projects have stalled due to high costs and fewer home sales in the high interest rate environment.
Floor & Decor’s profit fell by almost 22% year-on-year in the third quarter of the year. Challenges can also persist. Even if interest rates are expected to fall, it may take some time for mortgage rates to follow suit. There have also been doubts lately about how quickly the Federal Reserve will cut rates, as the economy and labor market still appear to be on solid footing. Given Buffett’s conservatism at the moment, this sale isn’t all that surprising.
Buffett and Berkshire bought just two stocks this quarter, with the largest purchase in the US Domino’s Pizza (NYSE:DPZ). Berkshire bought more than 1.27 million shares worth more than $549 million. This isn’t a large position for Buffett relative to the size of Berkshire’s portfolio, but again, that’s not surprising given Buffett’s cautious approach at the moment (the other purchase was a very small stake in Pool Corp.).
Domino’s had 20,500 locations in more than 90 markets at the end of 2023, making it the largest pizza company in the world. Nearly all Domino’s stores are owned and operated by people who franchise the company. The stock is up only about 5.5% this year, not counting the nearly 8% move in after-hours trading after Berkshire announced its position.
The quick service restaurant space is difficult to navigate as companies face high food costs, intense competition and challenges hiring and retaining employees in a strong labor market. The stock isn’t exactly cheap either, trading at 26 times forward earnings.
But I can understand why Buffett is interested in Domino’s. The consumer durables company aims to be a valuable option for consumers and could appeal to people even if they are facing financial constraints. On the company’s recent earnings call, CEO Russell Weiner said, “We need to ensure that our promotional prices are consistent and do not exceed the market CPI (Consumer Price Index).”
Furthermore, the pizza sector is growing globally and is considered a fairly recession-proof sector. I’m not saying Buffett sees a recession coming, but this could be a stock he could feel better about if unemployment suddenly starts to rise.
Remember, Buffett and Berkshire invest hundreds of billions of dollars and have a different mentality than private investors. Investors should not simply follow the steps of Buffett and Berkshire. Make sure you do your own due diligence before investing.
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Bram Berkowitz has no positions in the stocks mentioned. The Motley Fool holds and recommends positions in Berkshire Hathaway and Domino’s Pizza. The Motley Fool has a disclosure policy.
Billionaire Warren Buffett just ditched Floor & Decor and launched a new stake in this historic pizza company. originally published by The Motley Fool
