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Warren Buffett recently reported on stocks that Berkshire Hathaway Inc. CHICKH: BRK.B sold. But it looks like Buffett isn’t completely missing out on the growth. On November 15, Buffett made two large purchases of two shares that the company did not previously own. The shares were Domino’s Pizza Inc. New York Stock Exchange: DPZ And Pool Company NASDAQ: POOL.

These holdings make up only a small portion of Berkshire’s portfolio, but just as when Buffett began buying homebuilder stocks in 2023, the moves have investors wondering what Buffett might see in a company like Pool Corporation.

According to its website, Pool Corporation, operating as POOLCORP, is “the world’s leading wholesale distributor of pool equipment, parts and supplies, and related outdoor recreation products.” The company’s business is divided into discretionary and non-discretionary segments. He works with designers and builders to install a new pool structure, which is a discretionary purchase. It also provides pool owners with maintenance equipment, which is non-discretionary.

Is Buffett Buying Slump in Sales?

On November 19, housing starts fell 6.9%, below expectations. This was partly due to two hurricanes that hit the southeastern US, especially Florida, a key market for Pool Corp.

On the other hand, housing permits increased by just 0.5%, suggesting that weak housing starts are likely due to mortgage rates that are likely to remain high for a long time.

POOLCORP is part of the consumer discretionary stocks sector but is a housing-related play for investors. Looking at the chart of POOL stock, investors see sharp growth in 2020 and 2021. The move comes as homeowners step up their home improvement efforts during the global pandemic and the “Great Move,” which has seen new homeowners dispersed across the company’s three key markets. : Florida, Texas and Arizona.

Florida’s active hurricane season has impacted POOLCORP’s quarterly sales, but that’s where Buffett sees opportunity for the stock.

Profits came as expected

In October, POOLCORP delivered a solid but expected third-quarter earnings report. Earnings per share (EPS) of $3.26 beat analysts’ expectations for earnings per share of $3.15. Revenue of $1.43 billion also beat expectations of $1.40 billion.

The double whammy came with some caveats. First, net sales were down 3% year over year. The company cited hurricanes and subsequent cleanup in Florida as a key reason. There are times when weather can be abused to justify poor results. This is not the case with Poole.

And it’s important to note that despite the storms, the company achieved a modest 1% sales increase in Florida. It was also flat in Arizona, but sales related to pools independent of landscaping and irrigation were positive in the state. However, declining sales in California (-3%) and Texas (-6%) are another reminder that homeowners are still hesitant about their discretionary spending.

The company does not forecast sales to improve significantly in the current quarter. However, if you think this earnings report could reflect a worst-case scenario, POOL stock starts to look attractive.

Crossing off Buffett’s list

Looking at POOLCORP’s balance sheet, there are several reasons why the company might have attracted Buffett’s interest.

• Inventories of $1.2 billion at the end of the quarter were down 6% from the same period last year.

• The company has reduced debt to $924 million, with $110 million of debt paid off over the past 12 months.

• Cash flow from operations in 2024 was $489 million, with operating cash flow accounting for 123% of net income.

• The company completed $159 million in total share repurchases in 2024 and still has $507 million in stock repurchases authorized.

• The company is on track to increase its dividend for the 15th year in a row; Over the past three years, dividends have grown at an average annual rate of 23%.

Should you buy POOL shares?

POOL stock has been trading in a confirmed range since bouncing off its 52-week low in July. And while the stock couldn’t hold Buffett’s rebound, it’s trying to find support above $350.

This is true of the analyst consensus price for POOL stock. However, some analysts raised their price targets following the earnings release. The most significant comes from Goldman Sachs Group Inc. New York Stock Exchange: GS, which has a new price target of $415.

Based on the purchase of POOL shares, it is clear that Buffett’s views align with those of Goldman Sachs. However, on the surface, this doesn’t look like Buffett’s traditional buy-and-hold strategy. But if you accept that the company’s sales may exceed expectations, it may be a smart short-term deal.

Before you consider Poole, you should hear this.

MarketBeat tracks Wall Street’s top-rated and best-performing analysts daily and the stocks they recommend to their clients. MarketBeat identified five stocks that top analysts were quietly telling their clients to buy now, before the broader market caught on… and Poole wasn’t on the list.

While analysts currently rate Poole a Hold, the top-rated analysts rate these five stocks as Buys.

View five stocks here

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