Billionaire Warren Buffett has just dumped flooring and furnishings and launched a new stake in this historic pizza company

Warren Buffett is one of the biggest investors and his company Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) is one of the best long-term stock players ever. That’s why investors follow Berkshire’s stock purchases and sales so closely.

By law, Berkshire must report its stock holdings in a 13F filing no later than 45 days after the end of the quarter, which was Nov. 14 for the third quarter of the year. Investors were eagerly awaiting this report, as Berkshire has been storage of cash most of the year and not buy too many shares. This theme apparently continued in the 3rd quarter.

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However, Berkshire disclosed a few notable transactions in its 13F that investors had not been aware of. Buffett dumped his Flooring & Furnishing (NYSE: FND) holdings and started a new stake in a long-lived and storied pizza franchise.

A challenging environment for Floor & Interior

Berkshire first bought a stake in specialty retailer Floor & Decor in the third quarter of 2021, and it added shares in the fourth quarter of 2021 and the first quarter of 2022. However, Buffett became sour on the company in the second quarter of 2024, selling nearly 17% of Berkshire’s shares before making a full exit in Q3. It was never a large position for Berkshire, accounting for just 0.1% of its roughly $295 billion stock portfolio.

Floor & Decor offers different types of flooring, including tiles, wood and stone. The company has grown a lot since it went public in 2000. But the stock is down about 7% this year — hardly the performance you’re looking for in the middle of a bull market. The company has struggled as major home improvement projects have stalled due to high costs and fewer home sales amid the high interest rate environment.

Floor & Decor’s profit in the 3rd quarter of the year fell by almost 22% year on year. The challenges may also continue. Although interest rates are expected to fall, it may take a while for mortgage rates to follow suit. There have also recently been doubts about how quickly the Federal Reserve will lower interest rates, given that the economy and the labor market still appear to be on solid footing. Given Buffett’s conservatism right now, this sale isn’t terribly surprising.

Buffett enters the pizza business

Buffett and Berkshire bought just two stocks in the quarter, with their largest purchase in Domino’s Pizza (NYSE: DPZ). Berkshire bought more than 1.27 million shares worth more than $549 million. This isn’t a huge position for Buffett relative to the size of Berkshire’s portfolio, but again, it’s not surprising given Buffett’s cautious approach right now (the other purchase was a very small stake in Pool Corp.).

Domino’s had 20,500 locations in over 90 markets by the end of 2023, making it the world’s largest pizza company. Almost all Domino’s stores are owned and operated by franchisees. The stock is up only about 5.5% this year, excluding 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 problems hiring and retaining employees in a strong labor market. The stock is not exactly cheap either and trades at 26 times forward earnings.

But I can understand why Buffett is interested in Domino’s. The consumer beauty company is razor-focused on being a value option for consumers and could appeal to people even if they need to tighten up financially. On the company’s latest earnings call, CEO Russell Weiner said, “We need to make sure that our promotional prices are consistent and that they don’t go above the CPI (consumer price index) in the market.”

In addition, the pizza business is growing globally and is considered a fairly recession-proof business. I’m not saying Buffett sees a recession coming, but this might be a stock he might feel better about if unemployment suddenly starts to rise.

Remember that Buffett and Berkshire invest hundreds of billions of dollars and have a different mindset than retail investors. Investors should not simply follow Buffett and Berkshire’s moves. Be sure to do your own due diligence before investing.

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Bram Berkowitz has no position in any of the shares mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Domino’s Pizza. The Motley Fool has one disclosure policy.

Billionaire Warren Buffett has just dumped flooring and furnishings and launched a new stake in this historic pizza company was originally published by The Motley Fool