In November, Buffett's company $Berkshire Hathaway-A (BRK.A.US)$ announced its third-quarter holdings. According to the 13F document submitted to the regulators, $Domino's Pizza (DPZ.US)$ became the major new holding for that quarter. Berkshire Hathaway held 1.28 million shares of Domino's Pizza stock, valued at around $0.55 billion.

Domino's Pizza has numerous branches worldwide and is one of the well-known brands in the fast-food industry. The company went public on the NYSE in 2004, with a remarkable historical performance. $Alphabet-A (GOOGL.US)$ also went public the same year, with both showing equally impressive overall returns.

However, in 2024, the company's stock price underperformed the large cap, especially after the second quarter, experiencing a nearly 25% decline. As of the closing on November 18, Domino's Pizza's market cap is still around $15 billion.

How is Domino's operationally? What considerations might Berkshire have for opening positions? And is it wise to 'copy homework' based on the holdings of the big players?

Let's dive into this week's 'Rapid Opportunities'.

Learning benefits: If you want to learn more about popular investment opportunities, you can unlock and join.Futubull official communication group , with professional tutors and mooers sharing online, click here to join now>>

Slowing Sales Growth

In July, Domino's released its second-quarter report, meeting expectations in performance but giving a pessimistic guidance. Management predicted a slowdown in same-store sales and decided to pause the goal of adding 1,100 global stores by 2028. The company plunged nearly 15% on the day of the second-quarter report release.

In the third quarter, Domino's revenue continued to be under pressure. The third-quarter report released in October showed that Domino's international same-store sales growth was 0.8%, below the market's expected 2.9%; US same-store sales increased by 3%, slightly below the expected 3.6%. Management also further reduced the annual sales target growth rate from 7% to 6%. Until 2023, Domino's was able to maintain growth of over 10% annually for the previous 10 years.

This is mainly due to the persistent high inflation that has changed consumer habits. According to a survey conducted by Lending Tree this year, 78% of respondents believe fast food has become a "luxury goods". Driven by rising supply chain costs, menu prices have increased significantly, leading more and more consumers to choose to dine at home. Carnegie Investment stated that fast food prices are no longer attractive, and consumers can only turn to chain supermarkets and grocery stores.

During the third-quarter earnings conference call, Domino's Pizza management acknowledged the pressure on consumer spending and adopted a more aggressive pricing strategy. Domino's Pizza has increased promotions and discounts, updated its consumer loyalty program to provide more frequent rewards at lower prices. Domino's Pizza has also partnered with Uber Eats to expand sales through delivery channels.

The reason for taking action?

Due to the impact of the macro environment, Domino's growth plans have encountered obstacles. However, compared to many peers in the fast food industry, Domino's performance is still considered good.

According to Barron's, $McDonald's (MCD.US)$ And $Starbucks (SBUX.US)$ large chain restaurants have reported soft sales, with many restaurants forced to join price wars to win back customers. Many peers have already experienced negative growth in single-store sales, while Domino's Pizza is only slowing down and still in the process of expansion.

In a report released in November, investment institution Oppenheimer listed Domino's as its top choice in the restaurant industry. Analysts believe the company is poised for strong market share growth in 2025, with the current industry conditions very favorable for Domino's to outperform its competitors. By increasing promotion efforts and expanding delivery partners, sales are expected to return to growth.

MorningStar states that Domino's is a company with a wide moat, steered by an outstanding management team. In the past, with single-store growth surpassing peers and a rapid internationalization strategy, Domino's has brought significant returns to investors.

Technically, Domino's stock price has been in an upward channel from October last year to the second quarter of this year, just one step away from its historical high. However, there was a noticeable pullback afterwards, and in recent months it has been fluctuating within a horizontal range. Investors can monitor whether the stock price can effectively break through the 445 level in the future, which is the upper boundary of the current horizontal channel, and the market is expected to further develop on this basis.

Data source: futubull. Data is up to the market close on November 18, 2024. The case is for illustrative purposes only and does not constitute any investment advice or guarantee. Past performance does not predict future performance, the market carries risks, and investments should be made cautiously.

"Copying homework" is not always good, is it?

After the holdings of Berkshire Hathaway are revealed, we often see similar headlines in the news like "Buffett's new holdings in XX stock," but this is not entirely accurate. Berkshire Hathaway also has two portfolio managers: Ted Weschler and Todd Combs. Typically, positions below one billion USD are often handled by them, not Buffett himself.

Form 13f filings show that Berkshire Hathaway initiated new positions in the second quarter. $Ulta Beauty (ULTA.US)$ In the third quarter, these positions were mostly sold off, a situation that has occurred frequently in the past. Due to Buffett's reputation for long-term value investing, this has also raised questions among investors. Berkshire Hathaway's holdings in ULTA in the second quarter amounted to less than $0.3 billion, likely reflecting the decisions of the two investment managers.

Buffett mentioned a long time ago that he would not interfere with the investment decisions of the two individuals, "I might not know what they were buying until a month later."

Some investors choose to mimic the holdings disclosed in the 13F document to construct their own investment portfolios; this "Piggyback Investment" approach carries some risks.

Firstly, there is a time lag in the disclosure of 13F documents. For example, we can only see Berkshire Hathaway's holdings up to the end of the third quarter in November. During this period, the portfolio may have changed. In addition, the 13F document only discloses long positions, not involving short positions, options, and other derivatives. The risk tolerance and goals of large investment firms differ from individual investors.

The CFA Institute tracked the performance of "copycat portfolios" over a ten-year period. These portfolios showed higher volatility than the large cap and did not provide investors with significantly higher returns relative to the large cap.

Buffett himself has also publicly stated that investors should not rely on Berkshire's investment choices or imitate other financiers' holdings to get rich. "If they want to do what Berkshire does, then they can just buy Berkshire Hathaway's stocks." The 'Oracle of Omaha' said in 2016.

Risk disclosure: This content does not constitute a research report, is for reference only, and should not be used as a basis for any investment decisions. The information involved in this article is not a comprehensive description of the securities, markets, or developments mentioned. Although the information source is considered reliable, the accuracy or completeness of the above content is not guaranteed. In addition, no guarantee is given for any statements, opinions, or forecasts provided in this article.