There's a reason Warren Buffett is the most-followed billionaire money manager on Wall Street. Since becoming CEO of Berkshire Hathaway (BRK.A 0.24%)(BRK.B 0.38%) in the mid-1960s, the appropriately named "Oracle of Omaha" has overseen a scorching-hot aggregate return that surpassed 5,800,000%, as of the closing bell on Nov. 26.
Given Buffett's fairly consistent outperformance of the benchmark S&P 500, both professional and everyday investors wait on pins and needles to see which stocks he's been buying and selling. This can be done with relative ease thanks to the quarterly filing of Form 13F with the Securities and Exchange Commission.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
A 13F provides a snapshot of which stocks Wall Street's brightest, most successful asset managers bought and sold in the latest quarter, and it's a required filing for institutional investors overseeing at least $100 million in assets under management. Berkshire Hathaway's $302 billion investment portfolio clears this bar with ease.
Berkshire Hathaway's latest 13F continues a theme we've witnessed for eight consecutive quarters. Namely, Buffett and his team have been net sellers of stocks and very selective buyers. This likely signifies the Oracle of Omaha's displeasure with stock valuations at the moment and his desire to build cash in anticipation of an eventual emotion-driven correction in the broader market.
However, there was some very select buying activity during the September-ended quarter. In particular, Warren Buffett piled more than $500 million into his new favorite stock, which coincidentally is a company that eight other prominent billionaire money managers sold shares of during the third quarter.
Warren Buffett's new favorite stock has soared more than 7,400% since its 2004 debut
While the headline of Berkshire Hathaway's latest 13F is the continued selling activity in top holding Apple and No. 3 position Bank of America, perhaps the biggest eyebrow-raising moment was discovering that Buffett's company had purchased 1,277,256 shares of Domino's Pizza (DPZ +1.94%) in the September-ended quarter.
NASDAQ: DPZ
Key Data Points
Berkshire's chief might not always understand every minute detail of a company's products or innovation, but he's generated a hearty profit for his company by paying attention to consumer buying habits. Domino's has an exceptionally long growth runway in international markets. In fact, the company anticipates reporting its 31st consecutive year of international same-store sales growth in 2024. A strong brand name with a fairly loyal consumer base is typically a recipe for success among consumer staples stocks.
Warren Buffett is also a huge fan of strong management teams that build/retain trust with the public. Roughly 15 years ago, Domino's Pizza kicked off its mea culpa advertising campaign where it admitted its pizza was subpar and that it would make changes to win back hungry consumers. This kicked off a long series of transparent marketing campaigns that have engaged consumers and built trust in the company and its products.
Something else Domino's delivers that Berkshire's head honcho appreciates is a healthy capital-return program. In addition to occasional share repurchases, Domino's Pizza has been growing its base annual dividend for more than a decade. Inclusive of dividends, shares of the company have skyrocketed higher by more than 7,400% since its initial public offering (IPO) in July 2004.
Lastly, Buffett and his team have to be impressed with Domino's strategic innovation. The company's "Hungry for MORE" plan -- an acronym for "Most delicious food," "Operational excellence," "Renowned value," and "Enhanced by best-in-class franchisees" -- is leading to tangible order count growth and expansion in international same-store sales.
Image source: Getty Images.
Eight billionaire money managers are dumping shares of Domino's Pizza
But the stock market wouldn't be a "market" without opposing views. While the Oracle of Omaha was piling into his new favorite stock during the third quarter, eight prominent billionaire money managers were heading for the exit (total shares sold in parentheses):
- Ken Griffin of Citadel Advisors (427,556 shares)
- Israel Englander of Millennium Management (128,295 shares)
- Cliff Asness of AQR Capital Management (115,342 shares)
- John Overdeck and David Siegel of Two Sigma Investments (104,081 shares)
- Steven Cohen of Point72 Asset Management (90,897 shares)
- Philippe Laffont of Coatue Management (34,008 shares)
- Jeff Yass of Susquehanna International (5,436 shares)
While there's no arguing that Domino's Pizza has outperformed since adjusting its marketing approach and improving its product and process innovation 15 years ago, there are viable reasons why these eight billionaire investors are ringing the register that may go beyond simple profit-taking.
For one, Domino's Pizza isn't exactly cheap at 27 times forward-year earnings. While this is, technically, a smidgen below its average forward price-to-earnings (P/E) multiple over the trailing-five-year period, it's an aggressive earnings multiple for a company Wall Street expects to grow its sales by a relatively modest 6% in 2024 and 2025.
S&P 500 Shiller CAPE Ratio data by YCharts.
Perhaps the bigger issue is that the stock market is historically pricey. When back-tested 153 years, the S&P 500's Shiller P/E ratio, which is also known as the cyclically adjusted P/E ratio (CAPE ratio), is at its third-highest reading during a continuous bull market. The five previous times throughout history where the S&P 500's Shiller P/E surpassed 30 during a bull market rally (not including the present) eventually led to one or more of Wall Street's major stock indexes losing 20% to 89% of their respective value. When stock market corrections occur, companies with premium valuations are often hit the hardest.
There may also be some degree of concern about inflation creeping back into the picture. In 2022, rising food costs were a problem for Domino's that it couldn't sweep under the rug. It's a company that prides itself on keeping prices low for its budget-conscious consumers. If inflation were to reaccelerate under incoming President Donald Trump, Domino's margins could take a sizable hit.
While the foundation of Domino's business looks to be intact, it might take some time for the company's bottom line to grow into its already lofty valuation.
