Warren Buffett has guided Berkshire Hathaway (BRK.A -0.07%) (BRK.B 0.60%) to immense success during the past six decades, earning a reputation as one of the greatest investors in American history. Buffett made noteworthy capital allocation decisions in the first quarter involving Bank of America (BAC 1.80%) and Domino's Pizza (DPZ 2.33%):

• Berkshire sold 48,660,056 shares of Bank of America, cutting its position 7%. Nevertheless, it still ranks as the fourth-largest position in the company's stock portfolio.
• Berkshire bought 238,613 shares of Domino's Pizza, upping its stake 10%. However, it still ranks as one of the smaller positions in the company's stock portfolio.

Importantly, Bank of America stock advanced 228% during the past 10 years, such that it underperformed the S&P 500 (^GSPC 0.96%) by 10 percentage points. But Domino's Pizza stock soared 346% over the same period. Even more impressive, Domino's shares soared 4,230% in the past 15 years.

Read on to learn about these businesses.

Image source: Getty Images.

Bank of America: The stock Berkshire Hathaway sold in the first quarter

Bank of America has a strong competitive position in several financial services verticals. It ranks as the second largest U.S. bank as measured by domestic deposits, the third largest investment bank as measured by revenues, and the eighth largest merchant acquirer in terms of payment card processing volume.

The company reported strong first-quarter financial results that beat expectations on the top and bottom lines. Revenue increased 6% to $27.4 billion on especially strong momentum in its global markets segment, which which earns revenue from fixed-income and equity trading services. Meanwhile, GAAP earnings increased 18% to $0.90 per diluted share.

Also noteworthy, Bank of America set aside $1.5 billion for credit losses in the first quarter. That is unchanged from the previous quarter and less than Wall Street anticipated, which shows confidence not only in its lending business, but also in the U.S. economy despite potential headwinds from tariffs.

CEO Brian Moynihan commented: "Consumers have shown resilience, continuing to spend and maintaining healthy credit quality. Though we potentially face a changing economy in the future, we believe the disciplined investments we have made for high-quality growth, our diverse set of businesses, and the team's relentless focus on responsible growth will remain a source of strength."

Importantly, Bank of America was not the only bank stock Buffett sold in the first quarter. Berkshire also exited its position in Citigroup. I can only speculate as to why, but I would guess that Buffett thinks lower interest rates in the future will be a material headwind to banking revenue. Net interest income accounts for more than half of Bank of America's revenue. That, coupled with an elevated valuation, may explain the selling.

Bank of America currently trades at 1.7 times tangible book value, a premium to the 10-year average of 1.5 times tangible book value. But the multiple actually hit 1.8 in the first quarter. Yet, Wall Street remains bullish. Among 26 analysts that follow the company, the median target price is $50 per share, which implies 10% upside from its current share price of $45.50.

Domino's Pizza: The stock Berkshire Hathaway bought in the first quarter

Domino's is the largest pizza company in the world, a positioned it earned by focusing on value and innovation. The company improved its supply chain in recent years by moving dough production and topping preparation to regional robot-equipped facilities. That not only controls costs but also ensures a consistent customer experience across different stores.

Additionally, Domino's is using artificial intelligence to anticipate online orders to speed up the pizza-making process, visually inspect orders for accuracy, and surface insights from customer comments left on social media. Also, menu innovations such as parmesan stuffed crust pizza, and regular promotions have kept Domino's top of mind for consumers. The company regularly beats peers Papa John's and Pizza Hut (by Yum! Brands) in same-store sales growth.

Domino's reported mixed financial results in the first quarter, missing estimates on the top line. Revenue increased 2.5% to $1.1 billion and GAAP earnings increased 21% to $4.33 per diluted share. Importantly, CEO Russell Weiner says the company gained market share in the quarter despite missing medium-term guidance related to the "Hungry for More" goals it introduced in 2023.

"Hungry for More" targets three outcomes through 2028: 7% annual sales growth and 8% annual operating income growth excluding the impact of foreign currency, and 1,100 store openings per year. Domino's missed across the board in the first quarter. Sales increased less than 5% and operating income increased 1.4% excluding foreign exchange rates, and the company actually closed a net total of eight stores.

Wall Street expects Domino's earnings to increase at 9% annually over the next three years. That roughly aligns with its "Hungry for More" strategy, but makes the current valuation of 26 times earnings look expensive. Yet Wall Street thinks the stock is headed higher. Among 35 analysts, the median target price is $530 per share, which implies 11% upside from its current share price of $447.