Warren Buffett is one of the greatest investors around and his company Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) is one of the best long-term stock performers ever. That's why investors follow Berkshire's stock purchases and sales so closely.
By law, Berkshire must report its equity holdings in a 13F filing no later than 45 days after the quarter ends, which occurred on Nov. 14 for the third quarter of the year. Investors anxiously awaited this report, given that Berkshire has been stockpiling cash for much of the year and not buying too many stocks. That theme seemingly continued in Q3.
However, Berkshire did disclose a few notable transactions in its 13F that investors had not been aware of. Buffett dumped its Floor & Decor(NYSE: FND) holdings and started a new stake in a long-lived and storied pizza franchise.
A challenging environment for Floor & Decor
Berkshire first purchased a stake in specialty retailer Floor & Decor in Q3 2021, and it added shares in the fourth quarter of 2021 and the first quarter of 2022. However, Buffett began to sour on the company in the second quarter of 2024, selling nearly 17% of Berkshire's shares before doing a full exit in Q3. It was never a huge position for Berkshire, only accounting for 0.1% of its roughly $295 billion equities portfolio.
Floor & Decor offers various types of flooring, including tile, wood, and stone. The company has grown a lot since going public in 2000. But the stock is down about 7% this year -- hardly the performance one looks for amid a bull market. The company has struggled as big home improvement discretionary projects have stalled due to high costs and fewer home sales amid the high-interest-rate environment.
Floor & Decor's profits in Q3 of the year declined nearly 22% year over year. Challenges could persist as well. Even with interest rates expected to fall, it could take a while for mortgage rates to follow suit. There have also been doubts recently about how fast the Federal Reserve will lower interest rates, given that the economy and labor market still appear on solid footing. Given Buffett's conservatism right now, this sale isn't hugely surprising.
Buffett's getting into the pizza business
Buffett and Berkshire only bought two stocks in the quarter, with their biggest purchase in Domino's Pizza(NYSE: DPZ). Berkshire purchased more than 1.27 million shares valued at more than $549 million. This isn't a big position for Buffett relative to the size of Berkshire's portfolio, but again, that's not surprising given Buffett's cautious approach right now (the other buy was a very small stake in Pool Corp.).
Domino's had 20,500 locations in over 90 markets at the end of 2023, making it the largest pizza company worldwide. Nearly all of Domino's stores are owned and operated by people who franchise the business. The stock is only up about 5.5% this year, not including the nearly 8% move in after-hours trading after Berkshire disclosed its position.
The quick-service restaurant space has been difficult to navigate, as companies face high food costs, high competition, and trouble hiring and keeping employees in a strong labor market. The stock is not exactly cheap, either, trading at 26 times forward earnings.
But I can understand why Buffett is interested in Domino's. The consumer discretionary company is razor-focused on being a value option for consumers and could appeal to people even if they have to tighten up financially. On the company's recent earnings call, CEO Russell Weiner said: "We need to make sure that our promotional prices are consistent and they don't go above the CPI (Consumer Price Index) in the market."
Plus, the pizza business is growing globally and is considered to be a fairly recession-proof business. I'm not saying Buffett sees a recession coming, but this could be a stock he might feel better about if unemployment suddenly starts to spike.
Remember, Buffett and Berkshire invest hundreds of billions of dollars and have different mindsets from retail investors. Investors should not simply follow Buffett and Berkshire's moves. Make sure to do some due diligence of your own before investing.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Domino's Pizza. The Motley Fool has a disclosure policy.
