Warren Buffett, the famous fast food lover, just bought a stake in a national pizza chain whose shares are trading near their lowest level this year. With CEO Buffett at the helm, Berkshire Hathaway bought more than 1.2 million shares of Domino's Pizza last quarter, a stake worth about $550 million, a recent regulatory filing showed. Given its small size in Berkshire's massive portfolio — cash holdings alone amount to $300 billion — Buffett's investment assistants Ted Weschler and Todd Combs may be behind the investment. Whatever the original idea, Domino's Pizza is consistent with other long-term investments by the sprawling Omaha-based group. Berkshire already owns 100% of See's Candies and Dairy Queen, and counts Coca-Cola and Kraft Heinz, the hot dog's parent company, among its largest stock holdings. Buffett, the 94-year-old billionaire known for his childish eating habits, said he would happily drink five cans of Coke and eat McDonald's every day. However, despite the seemingly indulgent diet, Buffett remains healthy. The CEO of Berkshire once said, “I eat like a 6-year-old.” “I'm a quarter of Coca-Cola,” Buffett quipped. In 2014, Berkshire invested $3 billion in shares of Restaurant Brands International, owner of Burger King and Tim Hortons, and in the 1990s it had a large position in McDonald's. YTD shares of DPZ Mountain Domino's Pizza have trailed the S&P 500 this year. Value Bet Domino's fits into Berkshire's value investing philosophy, which focuses on cash flow, price-to-earnings and price-to-book metrics. At the same time, Berkshire may have simply benefited from the sharp sell-off at Domino's in July, when it fell 17%. One day, shares of the world's largest pizza chain fell more than 13%, their worst decline since 2008, after telling investors that sales would miss original expectations and that fewer new stores would open overseas than originally planned. As a result, Domino's price-to-earnings ratio fell to 23.7, the lowest level this year, according to FactSet data. Pizza Wars The pizza chain has suffered similar sales growth in the United States as competition for cost-conscious customers intensifies. “Near-term fundamentals remain under pressure,” said Jeffrey Bernstein, an analyst at Barclays Capital. “Similar to the 'burger wars' of years past, management believes we are now in the midst of the 'pizza wars,' with the focus on added value.” Even after Berkshire's revelations boosted Domino's shares, they are still up just 10% this year, well below the S&P 500's 25% return. The Barclays analyst, who recently met with Domino's management, said Berkshire's newly disclosed stake was mentioned in the meeting but the company didn't have much to add. “We don't think they spoke with Warren,” Bernstein told CNBC, referring to Domino's management, but they may have “received questions from the group before the stake was announced.”
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Buffett's new investment in pizza is a perfect fit for Berkshire's portfolio
