Warren Buffett's Smartest Move in Q3, According to Wall Street

Warren Buffett told Berkshire Hathaway shareholders in 2022 that anyone advising their kids on how to “make money per point of IQ and per erg of energy, tell them to go to Wall Street.” That doesn’t necessarily mean Buffett thinks Wall Street is full of high-IQ individuals, though. The legendary investor also said he’d bet on monkeys making stock picks before he’d bet on Wall Street.

But what does Wall Street think about Buffett’s recent investing moves? Analysts seem to view one of his trades in the third quarter as especially smart.

Analysts disagreed with most of Buffett’s moves

Before we get to what Wall Street thinks was Buffett’s smartest move in Q3, I have to point out that analysts disagreed with most of Buffett’s recent trades. That’s because Buffett sold more stocks than he bought — and Wall Street thinks most of those stocks will rise over the next 12 months.

For example, analysts don’t seem to be on board with Buffett’s decision to sell another 100 million shares of Apple. Thirty-two of the 47 analysts surveyed by LSEG in November rate the iPhone maker as either a “buy” or a “strong buy.” The average 12-month price target for Apple reflects an upside potential of around 5%.

Wall Street doesn’t agree with Buffett’s Q3 sales of Nu Holding or Ulta Beauty, either. The consensus price target for Nu is 12% above its current share price, while the consensus target for Ulta is roughly 9.5% above its current share price.

Where Buffett and Wall Street align

However, analysts were generally in alignment with a few of Buffett’s Q3 decisions. The agreement was primarily centered on the stocks the “Oracle of Omaha” bought rather than the ones he sold.

As a case in point, Berkshire Hathaway increased its position in SiriusXM Holdings (SIRI -1.42%) by 7.35 million shares in Q3. Some of this was due to the merger between SiriusXM and Liberty Media’s Sirius XM interests, in which Berkshire previously owned stakes. After the end of Q3, though, Buffett bought more shares of SiriusXM.

Wall Street clearly favors these moves. The average analysts’ 12-month price target for SiriusXM still reflects an upside potential of around 8% even after the stock has jumped close to 13% since the end of Q3.

Analysts like Buffett’s purchase of Domino’s Pizza, too. He initiated a new position in the pizza company in Q3, buying almost 1.28 million shares. Domino’s stock has risen roughly 9% since the end of the quarter, but the consensus price target is still nearly 2.5% above the current share price.

Buffett’s smartest move in Q3?

But Buffett’s smartest move in Q3, according to Wall Street, appears to have been his exiting of Berkshire’s stake in Floor & Decor Holdings (FND -3.75%). Buffett (or one of Berkshire’s two investment managers) decided to sell all 3.98 million or so shares of the specialty retailer after first buying the stock in the third quarter of 2021.

Many analysts no doubt think this sale was a prudent move. The average 12-month price target for Floor & Decor is almost 13% below the current share price. And the stock has fallen somewhat since the end of Q3. Of the 26 analysts surveyed by LSEG in November, only seven recommended buying Floor & Decor.

Although Wall Street might view Buffett’s exiting his position in Floor & Decor as his smartest move in Q3, I think another action by the legendary investor was even smarter. And it had nothing to do with buying or selling any stock. Instead, I have Buffett’s decision to further boost Berkshire’s cash stockpile in mind. The conglomerate had a whopping $325.2 billion in cash and short-term investments at the end of Q3.

Why is hoarding so much cash smart? Buffett is a value investor at heart. There aren’t many stocks that meet his stringent buying criteria right now. Increasing his cash position, therefore, is the smartest thing for him to do in light of his investing philosophy.

Sooner or later, stocks will be available again at more attractive prices. Buffett will then be able to back up the truck and load up. The strategic move to build Berkshire’s cash position to a record high could one day look absolutely brilliant in retrospect.