Warren Buffett's Surprising Investment

The latest changes in Warren Buffett's portfolio have raised some eyebrows, yet the Oracle of Omaha appears to be holding on to a large sum of cash for potential opportunities.​

Keeping the Powder Dry

Warren Buffett's Berkshire Hathaway disclosed its latest stock holdings in its 13F filing with the SEC last week. The company cut its overall stock holdings for the third consecutive quarter and decreased the number of companies it invested in to 40. The drop in holdings was $19 billion, a substantial slowing compared to the drop of over $50 billion in the second quarter. The company's trend of holding on to cash – a typical move by a traditional investor like Buffett before a potential market correction or a recession – is notable. The company recorded a record $325.2 billion in "cash", surpassing its $266.4 billion in equities.

Berkshire's "cash" statement refers to Treasuries, with currently high yields, which could see Berkshire's holdings gain if the Fed continues easing. Buffett is not in a rush to spend Berkshire's "cash". The company is even struggling to find ways to deploy its capital, as its head views the market as too elevated, and there are not many deals that exceed the yields offered by Treasuries. Berkshire sold a net of $34.6 billion in shares over the course of the last quarter, the bulk coming from Apple as it pared down its holdings in the tech firm by 25%, although it committed to remaining one of the top holders in the iPhone maker.​

A Stake in Domino's Pizza

Berkshire made significant reductions in nine of its portfolio holdings, including eliminating its stake in Liberty Sirius XM A/C, although it still holds class B shares in the broadcaster. In addition to selling a portion of its Apple shares, Berkshire sold 235.2 million shares in its Bank of America stake, a 23% reduction. The company increased its stake in Heico by 0.5% and added two new companies: Pool, with just 400,000 shares, and a notable $550 million stake in Domino's Pizza.

Given the current market conditions, buying a consumer company like Domino's Pizza is an interesting choice. Berkshire did not disclose its reasoning for the purchase, leading investors and analysts to speculate that one factor could be Domino's recent 20% drop in share price from its Q2 high to its late September low.

Domino's reported strong sales growth in its latest earnings, with same-store sales rising 6.5% since the start of the year. The company expects this trend to continue for the remainder of 2024 and through 2025. The "Buffett effect" resulted in an 8% boost in the stock price following the disclosure, although it still has room to recover to its all-time high of $560 per share from earlier in the year 2021.​

It May 'Handle' Higher Prices

Domino's price action resembles a cup-and-handle (C&H) pattern, with the recent decline to the September low of $400 per share forming the handle's half portion. If buyers reclaim the $500 round resistance, it could pave the way for a potential rally towards the 2024 peak of $540 and the record high of $570, with further long-term upside initially projected at $680 (the handle length added to the handle's peak). Conversely, failing to maintain support at $450 may precipitate a move back below the September low, exposing the $350 and $330 supports.​

Source: SpreadEx / Domino's Pizza US

Key Takeaways

Buffett's Berkshire Hathaway reduced its overall stock holdings for the third consecutive quarter, cutting large stakes in Apple and Bank of America. However, the company made a notable $550 million investment in Domino's Pizza, an interesting choice given the current market conditions. The company's stock price experienced a "Buffett effect" boost of 8% following the disclosure, although it still has room to recover to its all-time high. Domino's reported strong sales growth, with same-store sales rising 6.5% since the start of the year.