"A strong brand is really potent stuff," the Oracle of Omaha has been known to say.
When it comes to investing, Buffett likes to get medieval in that he believes in the economic moat theory.
“A truly great business must have an enduring 'moat' that protects excellent returns on invested capital,” the legendary investor said. "Brands are moats."
Just like the moats that encircled the castles of yesteryear, economic moats are intended to protect businesses from the rampaging hordes of competition.
But you have to build your moat property, because — heads up, another Buffett quote coming — "a moat that must be continuously rebuilt will eventually be no moat at all."
"Warren doesn’t outperform other investors because he computes odds better," Microsoft (MSFT) Co-Founder Bill Gates wrote in the Harvard Business Review in 1996. "That’s not it at all. Warren never makes an investment where the difference between doing it and not doing it relies on the second digit of computation."
DPZ and POOL shares rise on Buffett purchases
"He doesn’t invest — take a swing of the bat — unless the opportunity appears unbelievably good," Gates said.
Apparently Buffett sees an unbelievably good opportunity in Domino's Pizza (DPZ) and Pool Corp. (POOL) , according to a recent filing with the Securities and Exchange Commission.
Berkshire bought 1.28 million shares of the global pizza delivery chain, which were valued at $550 million at the end of the third quarter. And he added more than 400,000 shares of the wholesale distributor of pool equipment.
Shares of both companies jumped on news of Buffett's investments.
Domino's stock has risen 8,5% year-to-date and 20% from a year earlier. Pool Corp., on the other hand, is down 9% year-to-date and has advanced 3.5% from this time last year.
And both companies recently posted quarterly earnings.
Domino's, Ann Arbor, Mich., the largest pizza chain in the U.S., last month reported mixed third-quarter results, beating Wall Street's expectations for earnings but falling short on revenue.
Same-store sales in the U.S. increased 3%, missing analysts' consensus estimate of 3.55% and coming in below the 4.8% reported a year earlier.
In October Argus analyst John Staszak lowered the firm's price target on Domino's Pizza to $480 from $500 while maintaining a buy rating on the shares.
Staszak noted the revenue miss, but said he remained positive on the company's economies of scale, early entry into the pizza-delivery business, and prospects for growth in international and domestic markets.
More recently, Loop Capital upgraded Domino's to buy from hold with a price target of $559, up from $419.
The investment firm's latest checks with Domino's U.S. franchisees indicate same-store-sales growth recently accelerated after a slow start during early fiscal Q4.
Loop sees Domino's comp sales higher
The checks indicate that domestic comparable sales are up about 2.5% quarter-to-date, which is tracking below the firm's full Q4 estimate for 3% growth but ahead of consensus, which is up 2%, Loop Capital said.
Pool Corp. beat Wall Street's earnings and revenue forecasts.
The Covington, La., company reported that its third-quarter results were anchored by strong sales of nondiscretionary maintenance products, while sales of pool construction and discretionary products remained soft compared with a year earlier.
Oppenheimer raised its price target on Pool Corp. to $386 from $380 and kept an outperform rating on the shares following the quarterly results.
The firm notes Pool's Q3 adjusted earnings per share of $3.27 exceeded its estimate of $2.92 and the analyst consensus of $3.16, primarily as operations outperformed.
Stifel raised the firm's price target on Pool Corp. to $340 from $335 and affirmed a hold rating on the shares, saying its outlook "remains largely intact," with a slightly stronger fiscal 2024 revenue performance.
The investment firm added that its cautious approach to fiscal 2025 continues with below-consensus estimates, including both weaker sales and continued operating-expense deleverage, reflecting what it views as elevated costs of competing in the category.
Buffett sales reflect tax concerns
Meanwhile, Berkshire Hathaway earlier this year started to sell its Apple (AAPL) shares. As of Sept. 30 the investment group had cut its stake in the tech giant by two-thirds and its stake in Bank of America (BAC) to below 10%.
In May, Buffett said he expected Apple to remain Berkshire's largest stock investment, but selling made sense because the 21% federal tax rate on gains would likely grow, Reuters reported.
