Warren Buffett's Latest Moves: Selling Bank of America and Investing in Domino's Pizza

Warren Buffett, the renowned investor and CEO of Berkshire Hathaway, has made some significant moves in the stock market recently. In this article, we will explore his decision to sell 34% of his company's stake in Bank of America (BAC) and his investment in the beloved consumer brand Domino's Pizza (DPZ).

Selling Bank of America

Buffett's decision to sell 34% of Berkshire Hathaway's stake in Bank of America can be attributed to several factors that align with his investment philosophy. First, Buffett hinted at tax considerations during Berkshire's annual shareholder meeting in May 2024. He believed that locking in sizable unrealized gains at an advantageously low tax rate would be a wise move for Berkshire's shareholders. Although he was specifically referring to Apple (AAPL) at the time, it's possible that this played a role in the Bank of America sell-off as well.

Second, Buffett might be concerned about Bank of America's interest rate sensitivity. The bank's net interest income is sensitive to changes in interest rates. When the Federal Reserve increased the federal funds rate from March 2022 to July 2023, BofA benefited significantly. However, with the Fed now in a rate-easing cycle, there's a possibility that BofA's net interest income could decline at a faster pace. Buffett might be worried about this potential headwind.

Third, valuation concerns could be another reason for Buffett's decision to reduce his stake in Bank of America. When Buffett initially acquired $5 billion in preferred BofA stock in August 2011, the common stock was valued at a 62% discount to book value. As of February 14, 2024, it was valued at a 31% premium to book. Buffett is an unwavering value investor, and he tends to back away from great businesses if there's no longer a clear value proposition. The stock market as a whole is at one of its priciest levels in 154 years, and Buffett hasn't been shy about raising cash in an environment where value is difficult to come by.



Investing in Domino's Pizza

Despite being a net seller of stocks for nine consecutive quarters, Buffett has done some very selective buying. One of his top purchases is the beloved fast-food restaurant chain Domino's Pizza. During the September-ended quarter, Buffett and his team did very little buying... with one exception. The largest purchase of the third quarter was to open a brand-new position in Domino's Pizza. The 1,277,256 shares purchased equated to almost $550 million in market value, as of the end of September.

Domino's Pizza has been one of the top-performing stocks on Wall Street since its initial public offering (IPO) in 2004. Since its debut on July 13, 2004, shares have catapulted higher by more than 7,000%, factoring in dividends and the robust after-hours move associated with Berkshire Hathaway's 13F filing.

Domino's Pizza's strong brand, consistent performance, recurring revenue stream, resilience, and alignment with Buffett's long-term investment strategy make it an appealing investment for the Oracle of Omaha. The company's focus on digital ordering and delivery has further enhanced its recurring revenue stream, as customers increasingly rely on technology for convenience and speed.

In conclusion, Warren Buffett's decision to sell 34% of Berkshire Hathaway's stake in Bank of America can be attributed to tax considerations, interest rate sensitivity, and valuation concerns. His investment in Domino's Pizza aligns with his long-term investment strategy, as the company's strong brand, consistent performance, recurring revenue stream, resilience, and focus on digital ordering and delivery make it an appealing investment. As always, Buffett's moves in the stock market are closely watched by investors, and his latest decisions provide valuable insights into his investment philosophy and the current market conditions.