Watching the investing moves of legendary investor Warren Buffett has become a routine activity for many other retail and institutional investors alike. Buffett's Berkshire Hathaway (BRK.A +0.24%) (BRK.B +0.25%) just released its latest filing showing Berkshire's most recent stock holdings.
One big surprise was a new entry into the portfolio. Berkshire disclosed for the first time that it now owns stock in pizza giant Domino's Pizza (DPZ +1.88%). And Berkshire didn't just dip a toe in the water with its Domino's buy -- its latest 13F filing showed it acquired almost 1.3 million shares worth $550 million as of the market close on Nov. 15. That was the only sizable new stock holding.
Of course, investors can have a stake in Berkshire's portfolio just by owning Berkshire Hathaway stock, which has more than doubled in value for investors over the last five years. But digging into why Buffett and his team invest in an individual stock could get investors outsized returns.
NYSE: BRK.B
Key Data Points
Since Warren Buffett has added Todd Combs and Ted Weschler as investment officers to co-manage Berkshire's massive stock portfolio, investors don't typically know for sure who makes the final decision on any one stock purchase or sale. But the Domino's addition has some of the markings of a Buffett-led purchase.
Buffett likes quality stocks at sensible prices
The billionaire investor still controls 90% of Berkshire's $300 billion portfolio, but that still leaves tens of billions for Combs and Weschler to manage. Buffett has long been a value investor at heart, and investors should take notice because Domino's seems to be a value pick by Berkshire.
Buffett studied under value-investing legend Benjamin Graham at Columbia University. Graham also mentored Buffett when Buffett started working at his professor's company, Graham-Newman Corporation, in 1954. That value-trained mind may have taken notice to consider adding Domino's to the portfolio when the pizza company's shares took a big hit in July.
NASDAQ: DPZ
Key Data Points
Domino's hit a rough patch
In its second-quarter report released in July, Domino's spooked investors by saying it expected global net store growth to fall far short of its previous estimates. It reduced that guidance by between 175 and 275 stores due to challenges with one of its major international franchisees. That was up to a 25% reduction from its previous plans. The stock sank by more than 13% on that news.
However, the U.S. business continues to prosper. The company still sees at least 175 annual net store openings domestically through 2028. The international business is important for Domino's growth plans, though, as it still expects at least 650 new store openings overseas this year.
Image source: Domino's Pizza.
The pizza giant is a fit for Berkshire's portfolio
In its subsequent third-quarter report released in October, Domino's did, in fact, show that global retail sales growth sank by more than 200 basis points from the prior quarter. Yet the company still sees 6% annual global retail sales growth this year and an 8% increase in income from operations.
Longer-term guidance for 2026 to 2028 remains intact. The company sees retail sales growth increasing by 7% annually in those years.
Investors haven't warmed back up to the largest pizza company in the world, though. Domino's shares trade at a price-to-earnings ratio (P/E) below their three-year average and have averaged a P/E of 29 over that time period. That metric was as high as nearly 35 prior to the disappointing second-quarter report.
At this writing it has a P/E of 26.5, a level it hadn't hit since late 2023 before the July stock-price plunge. Those price-to-earnings ratios still may not seem like a value-type investment, but Domino's is still a growing company.
Investors looking for a long-term holding could do well to follow Berkshire's lead and invest in Domino's before the stock reflects a rebound in store growth. Domino's also pays a dividend that recently would add to returns by about 1.3% annually.
