Warren Buffett Sells Apple Stock and Buys a Restaurant Stock Up 3,100% Since Its IPO

Warren Buffett reportedly manages about 90% of Berkshire Hathaway's (NYSE: BRK.A) (NYSE: BRK.B) equity securities portfolio, while understudies Todd Combs and Ted Weschler handle the rest. The company does not disclose which investment manager makes each individual trade, but Buffett is almost certainly in charge of large positions like Apple (NASDAQ: AAPL).

Despite once calling Apple the "best business" in the world, Buffett sold 100 million shares in the third quarter, cutting Berkshire's stake by 25%. And while Apple still ranked as the company's largest holding as of Sept. 30, Buffett has now sold more than 615 million shares in the last four quarters.

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Meanwhile, Berkshire started a very small position in Domino's Pizza (NYSE: DPZ) in the third quarter. That stock is up 3,100% since its initial public offering (IPO) in July 2004, but it has struggled more recently. Shares have fallen 21% in the last three years, despite the S&P 500 advancing 28% during that period.

Here's what investors should know about Apple and Domino's.

Apple: The stock Warren Buffett's Berkshire Hathaway sold in the third quarter

Apple has built brand authority and pricing power through engineering expertise. Its lineup of consumer electronics products is built on proprietary software that creates a seamless user experience across devices, and consumers are willing to pay for that. The average iPhone price was 3 times higher than the average Samsung smartphone price during the third quarter.

Apple has a strong presence in several consumer electronics markets, including a leadership position (as measured by sales) in smartphones. However, the company in recent years has expanded its focus beyond hardware. Adjacent services like App Store downloads, iCloud storage, and Apple Pay let the company more efficiently monetize its installed base that exceeds 2.2 billion active devices.

Apple reported modest financial results in the fourth quarter of fiscal 2024, which ended in September 2024. Revenue increased 6% on double-digit sales growth in the services segment, and mid-single-digit sales growth in the Mac, iPad, and iPhone segments. Meanwhile, non-GAAP (adjusted) earnings increased 12% to $1.64 per diluted share.

Apple is a solid business, but not even the best business is worth buying at any price. Apple's price-to-earnings (P/E) ratio has risen from 26 in April to 42 in December without a meaningful catalyst. Sure, it recently launched Apple intelligence, a suite of artificial intelligence capabilities for newer iPhones and MacBooks. But that has yet to trigger the upgrade cycle predicted by so many analysts.

The present P/E multiple looks particularly expensive because Wall Street expects Apple's earnings to increase at 10% annually over the next three years. In my opinion, that makes the stock wildly overvalued at its current price, and I think Warren Buffett made the right call in selling shares. But certain Wall Street analysts would disagree. Dan Ives at Wedbush says Apple could be a $5 trillion company within 18 months.

Domino's Pizza: The stock Warren Buffett's Berkshire Hathaway bought in the third quarter

Domino's is the largest pizza company in the world as measured by sales and stores. The company delivers 1 in every 3 pizzas in the U.S., according to The Wall Street Journal. Regular promotions and the recent relaunch of its loyalty program have helped Domino's build a reputation for providing more value than peers like Papa John's International and Pizza Hut (owned by Yum! Brands).

Consequently, Domino's has been more likely to report same-store sales growth in recent years. In fact, its same-store sales have increased in seven consecutive quarters despite somewhat difficult macroeconomic conditions created by high inflation and rising interest rates, which have made consumers especially choosy. Comparatively, Papa John's and Pizza Hut have seen same-store sales decline in four of the last seven quarters.

Domino's reported mixed results in the third quarter. Revenue increased 5% to $1 billion, which missed the 7% increase Wall Street anticipated. However, generally accepted accounting principles (GAAP) net income was flat at $4.19 per diluted share, which was better than the 13% decline analysts expected. The company opened a net total of 72 stores in the third quarter, such that its total store count now exceeds 21,000.

CEO Russell Weiner told analysts on the third-quarter earnings call: "I continue to believe that we will deliver U.S. same-store sales growth of 3% or more annually. And that's why I expect Domino's to continue to drive additional market share gain." The company also reiterated its guidance for "approximately 8% annual income from operations growth" through 2028.

To that end, Wall Street expects Domino's earnings to increase at 8% annually during the next few years. Company guidance and Wall Street's outlook may be conservative given that Domino's anticipates a rebound in international sales in 2026, but the stock is still expensive at its current valuation of 26.6 times earnings. I think investors should wait for a better entry point.

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Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Domino's Pizza. The Motley Fool has a disclosure policy.