Here Are the 2 Stocks Warren Buffett Can't Stop Buying

Key Points

• Berkshire Hathaway has struggled to deploy capital in new equity purchases in recent years.

• Over the past year, Buffett's built positions worth over $1 billion in these two smaller companies.

• The stocks look fairly valued, but it could be an opportunity to buy two great companies at a fair price.

• 10 stocks we like better than Domino's Pizza ›

Over the last three years, Warren Buffett has seen Berkshire Hathaway's cash balance balloon to an astounding $344 billion. He would love to invest it, but finding great opportunities in the stock market or private equity has been extremely difficult amid the current bull market.

In fact, Buffett's been selling some of Berkshire's biggest holdings as valuations climb to levels he deems unreasonable. In the meantime, the best opportunities seem to be in smaller companies, where it's extremely difficult to invest billions of dollars without substantially moving the market.

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But there are opportunities. While an investor with $344 billion to deploy can only invest a tiny fraction of a portfolio in most of them, you could make them a much more substantial portion of yours. Buffett has bought shares of two different stocks in each of the last four quarters, and it might not be too late to join him.

Image source: The Motley Fool.

Here are the two stocks Warren Buffett can't stop buying

Buffett told shareholders that Berkshire faces a significant challenge in the market right now. "There remain only a handful of companies in this country [the U.S.] capable of truly moving the needle at Berkshire," Buffett wrote in his 2023 letter to shareholders published more than a year-and-a-half ago. Stocks, particularly large-cap stocks, have only gotten more expensive since then.

As a result, Buffett has only managed to buy about $12 billion worth of stocks over the last four quarters. In the meantime, he's sold roughly $58 billion worth.

The reason for the small purchases is because Buffett's buying relatively small companies. Over the last four quarters, he's established a stake in Pool Corp (NASDAQ: POOL) worth $1.1 billion, and a stake in Domino's Pizza (NASDAQ: DPZ) worth $1.2 billion. The former represents a 9.3% stake of the entire company, while the latter is a 7.8% stake. But as a percentage of Berkshire's portfolio, they each represent less than half a percent. That percentage is even smaller if you include Berkshire's massive cash pile.

While a $1 billion investment probably won't move the needle for Berkshire Hathaway, it's not insignificant. Capital deployed in a great long-term investment is better than capital sitting in Treasury bills. These are stocks that Berkshire could hold for a very long time, and retail investors could do that too.

Jumping into the pool with Buffett

Pool Corp looks just like the type of boring business Warren Buffett loves. It distributes pool equipment and chemicals for service providers. It has relatively stable and predictable revenue because the majority of its sales come from pool maintenance and minor repairs. These are expenses that pool owners have year in and year out. Management estimates that 64% of its sales come from maintenance versus new construction or big renovations.

As the largest player in the industry, Pool Corp has significant advantages of scale. It's able to source products at lower costs and generate higher margins. That's especially important as tariffs threaten to increase the cost of goods shipped from outside the United States. Management expects to be able to maintain its gross margin from 2024 through the end of 2025. Additionally, Pool Corp operates 440 sales centers around the world, ensuring it can deliver products to customers quickly and efficiently.

Shares of Pool Corp have struggled to keep up with the market as it suffers a hangover from the pool boom we saw in 2020 and 2021. Buffett has taken the opportunity to buy shares as the stock now trades close to its average price-to-earnings (P/E) ratio from the last decade. While investors may shy away from the company's 3.6% free cash flow yield while Treasury bills still offer better returns, that number should move higher in the near future (while T-bills are set to move lower).

Management strategically added inventory ahead of tariffs in the second quarter and paid a one-time deferred tax bill in the first quarter. Free cash flow should climb again as it normalizes inventory levels going forward.

Delivering returns for shareholders

Domino's is the largest pizza company in the world, with more than 20,000 stores in over 90 countries. It's only grown more dominant over the past decade, as it benefits from a strong loyalty program, excellent marketing, and its fortressing strategy.

The combination of Domino's loyalty rewards and the fortressing strategy, which densely packs stores in a single market, has helped grow carryout orders. For those who still order delivery, the strategy ensures there's a store close to their home, so the pizza gets there fast. Carryout comparable sales grew 5.8% last quarter, setting a new record for carryout sales in a quarter.

Domino's locations are mostly franchises, with the company handling marketing and other overhead. It sells franchisees ingredients through its supply chain, which makes up the bulk of its revenue along with franchise fees. But Domino's scale and focus on order volume allow it to keep total costs low and keep businesses profitable at the store level, ensuring it can consistently find new franchisees to grow its store count and support its fortressing strategy.

With a capital-light business model, Domino's is seeing strong cash flow growth. Trailing 12-month free cash flow climbed 20% over the past year as of the end of Q2. Management uses that free cash flow to pay a growing dividend, yielding 1.5%, and buy back shares ($200 million so far in 2025). The stock trades for a forward P/E around its average for the last few years, and it looks like another solid company Berkshire could hold forever.

In other words, it's a great company at a fair price.

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Adam Levy 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.