Warren Buffett is hailed as one of the greatest investors in American history, thanks to his patience and value investing philosophy. Under Buffett’s leadership, Berkshire Hathaway’s stock price has nearly doubled the return of the S&P 500 over the past sixty years. Recently, Buffett and his team continued to reduce their holdings of Apple stock (AAPL) in the second quarter. Since first trimming their position in Q3 2023, the cumulative reduction has reached 69%. At the same time, they increased their stake in Domino’s Pizza (DPZ) for the third consecutive quarter. The restaurant chain’s stock has delivered a remarkable return of 4,270% since 2005.
Apple recently reported strong earnings for the June quarter, with revenue increasing 10% year-over-year to $94 billion, marking the fastest growth since 2021. GAAP earnings per share rose 12% to $1.57, exceeding market expectations. The core investment thesis lies in Apple’s powerful brand authority and integrated hardware-software design capabilities, which grant it significant pricing power. The average selling price of the iPhone has long been three times that of Samsung phones, and its global installed base of devices exceeds 2.3 billion, laying the foundation for future AI profit potential. However, Apple faces compliance pressures from the European Digital Markets Act, which may impact its services revenue. Additionally, if the antitrust lawsuit involving Alphabet is upheld, it could reduce pre-tax profits by 7%. Furthermore, Apple’s current price-to-earnings ratio of 35 is relatively high compared to its projected annual earnings growth of 10% over the next three years. Its PEG ratio stands at 3.5, higher than tech giants like Amazon and NVIDIA, indicating significant valuation pressure.
In contrast, Domino’s Pizza delivered a solid performance in the second quarter, with revenue increasing 4% to $1.1 billion and same-store sales growing 3.4%. The company added a net 178 new stores. Although GAAP earnings per share declined 6% year-over-year due to strategic investment losses, operating profit still increased 15% to $225 million. As the world’s largest pizza company by sales, Domino’s operates more than 21,500 stores across 90 countries and boasts significant technological advantages, such as using artificial intelligence to monitor order quality and analyze consumer sentiment.
Although Wall Street expects Domino’s to achieve approximately 10% annual earnings growth over the next three years, its price-to-earnings ratio of 27 remains relatively high. Nevertheless, given its clear growth strategy and industry position, long-term investors may consider a moderate allocation. It is worth noting that Berkshire’s position in Domino’s accounts for less than 1% of its investment portfolio. Investors are advised to remain rational and manage their positions accordingly.
