However, as experienced investors know, past performance is not a strong indicator of future results. And with economic pressure heating up, can this market momentum really continue next year? Here’s what the experts are saying.

Bulls versus bears

As always, there is a mix of opinions among experts, each with justifiable reasons behind their bullish or bearish stance.

On the side of the optimists, Deutsche Bank and Oppenheimer have highlighted the surprising resilience of the US economy despite a softer labour market and tariff disruptions. And when combined with the earnings tailwinds and expected spending of large-cap tech giants, their models predict the S&P 500 could climb to as high as 8,100 points.

That’s about 18.3% higher than current levels, suggesting another year of blockbuster returns could be just around the corner.

However, on the opposite end of the spectrum lies Bank of America. While it remains relatively bullish on the US economy, it’s only projected the S&P 500 to reach 7,100p, implying that 2026 could be an underperformer as businesses try to catch up to their lofty valuations.

And as part of its more extreme bear-case scenario, the index could tumble to as low as 5,500 points if AI spending suddenly grinds to a halt or earnings disappoint.

What should investors do now?

Looking at all the expert forecasts, the average consensus suggests that 2026 will likely be a slower year for the leading US index. However, that doesn’t mean there aren’t any opportunities to take advantage of, especially for stock pickers. And one company that’s recently caught my attention is Domino’s Pizza (NASDAQ:DPZ).

Similar to Domino’s here in the UK, the US pizza chain has struggled to deliver growth as demand for fast/casual restaurants has waned. And subsequently, the US stock has underperformed over the last 12 months, tumbling by almost 9%.

However, looking at its latest results, analysts are starting to wonder if the business has reached a cyclical turning point. The success of its ‘Best Deal Ever’ promotional campaign appears to have resonated well, driving improved US sales through both volume and higher ticket prices.

At the same time, efforts to optimise operations and bolster efficiency seem to be paying off, with its supply chain profit margin climbing to 11.3% in the latest quarter, up from 10.6% a year ago. Combine all this with a historically-low forward price-to-earnings ratio of 22.3, and Domino’s shares could be getting ready for a comeback next year.

Input cost inflation remains a prominent threat, particularly for cheese and wheat, potentially offsetting its recent margin gains. And if wider economic conditions take a sudden turn for the worse, discretionary takeout spending’s likely to be among the first things consumers will cut back on.

Nevertheless, its undemanding valuation combined with comeback potential makes this a business worth investigating further, in my opinion. And it’s not the only US stock I’ve got my eye on right now.

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However, while most investors are fearful of a massive AI bubble, at the 2025 annual shareholder meeting for Berkshire, Buffett revealed what he’s most concerned about. And it isn’t AI.

A ticking time bomb?

A problem that’s been brewing for many countries in recent years is fiscal deficits. In the 2024/25 tax year, the UK ended the year with an estimated £148.3bn deficit. But in America, the situation is even more dire with a $1.8trn deficit.

This isn’t a new problem. In fact, the US government has run a fiscal deficit every year since 2002. And it’s only got bigger and bigger. For many years, this gap was filled by simply borrowing money. And with interest rates sitting near 0% for so long, this tactic proved quite effective.

But today, that’s no longer the case. And subsequently, this reliance on debt has started to backfire, resulting in a significant chunk of national budgets allocated solely to keeping up with interest payments.

With borrowing increasingly becoming less viable, the pressure is on to either cut public spending or raise taxes – neither of which is politically popular. And it’s a tricky situation that requires unpopular policies to fix. Yet, so far, it seems the US government continues to kick the can down the road.

That’s why at Berkshire Hathaway’s shareholder meet, Buffett highlighted that one of his biggest concerns right now: “Fiscal policy is what scares me in the United States.“

What now?

In light of Buffett’s warning, it’s easier to understand why he’s been trimming a lot of his US positions. However, it’s also important to highlight a few instances where he’s actually been buying US stocks. For example, Berkshire’s recently topped up its position in Domino’s Pizza (NASDAQ:DPZ).

Much like Domino’s here in the UK, the American enterprise has struggled in recent years with demand seemingly soft as consumers cut back on takeouts. However, while we don’t know Buffett’s precise investment thesis, it’s not difficult to see why he’s taken a liking to this business.

Despite the cyclical headwind, Domino’s continues to enjoy a serious technological edge over its competitors. Its hyper-optimised order and delivery system not only maximises operational efficiency, but it’s also worked wonders in improving the customer experience, resulting in a market-leading brand that’s vastly outperformed rivals such as Papa John’s and Pizza Hut.

The company obviously still has to navigate through an uncertain economic climate. And that’s already materialising in slowing like-for-like sales. Meanwhile, food inflation’s driving up input costs, resulting in a double-whammy that’s pressuring profit margins.

Nevertheless, if the world’s greatest investor has taken an interest, then it seems only prudent to take a closer look. And it goes to show that even with macro concerns, Buffett still believes there are bargain stocks to buy even in today’s climate.

That’s why I’ve also been loading up on other undervalued US stocks for my own portfolio.

The post Here’s what terrifies Warren Buffett the most in today’s stock market! appeared first on The Twelfth Magpie.

As Buffett puts it, the indicator is “probably the best single measure of where valuations stand at any given moment”. And for value investors, knowing when the stock market is overpriced is a powerful advantage, even when relying only on index funds.

However, looking at the Buffett Indicator today might cause some concern.

US stocks are expensive

Historically, his Indicator has sat between 90% and 135%. This healthy range generally indicates that US stocks are fairly-to-slightly overvalued and presents an ideal window of opportunity to top up on investments. But following the tremendous artificial intelligence (AI)-driven returns of 2023 and 2024, the indicator’s been rising. So much so that it now sits at a whopping 207%!

That’s the highest it’s ever been since records began in the 1970s. And it’s even higher than the 194% peak seen in late 2021, right before US stocks experienced one of the most severe market corrections seen in over a decade.

That would certainly explain why Buffett and his team at investment vehicle Berkshire Hathaway have been busy selling stocks lately. In fact, the firm just marked its 11th consecutive quarter of being a net seller, with positions such as Bank of America, Citigroup, and Capital One all getting trimmed, or outright sold off.

So could another stock market downturn be just around the corner?

Panic isn’t a strategy

The stretched valuation of US stocks definitely creates cause for concern. However, there’s no guarantee a crash or correction will actually materialise. Therefore, panic selling everything today likely isn’t a sensible strategy, and it’s why Buffett, despite higher selling activity, still has plenty of capital invested in the US stock market. In fact, he recently added $549m of Domino’s Pizza (NASDAQ:DPZ) to its investment portfolio.

His investment thesis is relatively simple. As the world’s largest pizza delivery company, Domino’s runs a 99% franchised business model. Combining this with its recurring ingredient & supply chain revenue and its high-margin royalty income, the business is highly cash generative. And what’s more, the firm’s proven to be quite recession-resistant since people tend to eat pizza during both the good times and the bad.

Of course, Buffett still highlighted some notable risks. Rising labour and ingredient prices do put pressure on profit margins, and the general shift towards healthier dining could erode demand over time. Nevertheless, he sees ample long-term potential for steady gains here. And given his track record of success, investors may want to take a closer look.

Will the stock market crash in 2025?

There’s no way of knowing whether the stock market will take a nosedive later this year. Even with the Buffett Indicator at sky-high levels, Berkshire’s investment in Domino’s suggests there are still bargains to be found among US stocks.

Therefore, investors could be well served to follow in Buffett’s footsteps, not by panic-selling, but by trimming overvalued positions to maintain portfolio diversification and hunting for hidden bargains.  

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It seems that these 1.27m shares in Domino’s were just the start for Buffett and Berkshire, however. Because the latest 13F filing (published in the last few days) shows that in Q4 2024, he bought a lot more shares.

Half a billion worth of stock

The latest 13F reveals that in Q4, Berkshire Hathaway bought another 1.1m shares in Domino’s. This increased his position size by 86.5% (which is significant).

We don’t know exactly what price Buffett (or his investment assistants) paid for these shares. However, at today’s share price of $477, we’re talking about approximately $525m worth of stock.

Now, a lot of investors like to copy Buffett’s trades. And it’s easy to see why – over the last half century he’s generated huge returns from the stock market.

However, I’m not convinced that buying shares in the US-listed version of Domino’s Pizza here is the best move. While the company does have a great brand and long-term track record, it currently trades at 27 times this year’s forecast earnings (which is high) and offers a dividend yield of just 1.4% (low).

To my mind, the risk/reward setup is not great at those metrics. If revenue or earnings were to come in below forecasts for some reason (like lower levels of consumer spending), the stock could take a hit.

Does Domino’s UK offer more value?

It’s a different story with the UK-listed version of Domino’s Pizza (LSE: DOM) though. Currently, this stock trades on a price-to-earnings (P/E) ratio of just 14. And the dividend yield is a healthy 3.8%. At those metrics, the risk/reward set-up looks quite compelling, in my view.

I’ll point out that while the two companies share the Domino’s Pizza name (which is one of the most powerful fast food brands in the world), they are different businesses. Whereas the US-listed stock offers exposure to the US market (which is huge) and international franchises, the UK-listed stock offers exposure to the brand in the UK and the Republic of Ireland (much smaller markets).

Given that the UK-listed Domino’s is focused on smaller markets, there’s less long-term growth potential. There is probably also more risk of something going wrong (such as a shift in consumer preferences).

However, I reckon a lot of this is factored into the valuation. A P/E ratio of 14 seems very reasonable to me given this company’s strong long-term track record (revenue climbed from £289m in 2014 to £680m in 2023).

Given the low valuation and healthy yield, I believe that shares in the UK-listed version of Domino’s are worth considering for a portfolio today. Taking a long-term view, I think they have the potential to deliver solid returns.

The post Warren Buffett continues to invest in this well-known pizza company appeared first on The Twelfth Magpie.

Should investors consider following Buffett and grabbing a slice of Domino’s for their own portfolios? Let’s discuss.

Investing choices

There are a number of different Domino’s Pizza stocks on the market today. There’s the US-listed stock, which offers exposure to the US market and international franchises. There’s the London Stock Exchange (LSE)-listed Domino’s Pizza (LSE: DOM) stock, which offers exposure to the brand in the UK and the Republic of Ireland. And then there’s an AIM-listed stock, DP Poland, which offers exposure to the chain in Poland and Croatia.

Naturally, Buffett invested in the US-listed stock, which is the largest by a wide margin.

Buffett’s new stock

Now, US-listed Domino’s definitely has some great attributes from an investment perspective. For starters, there’s the brand. According to Statista, Domino’s is the most popular pizza brand in the world.

Secondly, the company has a great long-term track record when it comes to generating wealth for investors (one thing Buffett definitely likes to see). Over the last 20 years, the stock’s risen about 2,500%.

Additionally, the company has a strong balance sheet and is growing its dividend at a rapid pace. Over the last five years, the payout’s more than doubled (the yield‘s still pretty low at around 1.3%).

But for me, the valuation isn’t so attractive today. With analysts expecting the company to generate earnings per share of $17.60 next year, the forward-looking price-to-earnings (P/E) ratio’s 26.1.

That’s high for a fast-food company. And it doesn’t leave much room for setbacks or challenges (like a shift to healthier eating or fancier pizzas).

So I’m not convinced that following Buffett into this stock is the best move right now. For me, the risk/reward proposition isn’t enticing.

The UK Domino’s is cheaper

Looking at the LSE-listed Domino’s Pizza stock however, it’s a different story. Currently, the forward-looking P/E ratio on this stock’s only 15.4. So the valuation’s considerably lower. Meanwhile, the dividend yield’s higher at around 3.4%. So the stock could provide some decent income.

It’s worth noting that, like its US-listed peer, this stock has a great long-term track record in terms of shareholder returns. Over the last 20 years, it’s risen about 1,400%. That’s not as high as the return from the US-listed stock, but it’s still an incredible return (it would have turned £5k into £75k).

Of course, the UK and Irish markets are much smaller than the US market. This factor could limit opportunities for growth going forward.

Consumers in the UK also have less disposable income than those in the US. This could have an impact on future returns. Overall though, I see appeal in the UK version of Domino’s stock today. I think it’s worth considering for a diversified investment portfolio.

The post Should investors follow Warren Buffett and invest in this well known pizza company? appeared first on The Twelfth Magpie.

His latest filing revealed that he’s just bought shares in Domino’s Pizza (NYSE:DPZ). So what prompted him to open this new position? And should investors consider the UK-variant of Domino’s Pizza (LSE:DOM) for their portfolios? Let’s take a closer look.

The largest pizza chain in America

According to Bloomberg Second Measure, Domino’s Pizza currently controls an estimated 42% of the US market share for pizza restaurants. That’s significantly larger than Pizza Hut’s 23% and Papa John’s 22%. And its dominant brand’s clearly translated in the firm’s financials.

Looking at the latest quarterly results, the group’s on track to achieve four consecutive quarters of profitable order-count growth. As a result, same-store sales over the first nine months of 2024 have jumped by 4.5%, delivering $13.2bn of revenue and $605.3m of operating profits.

The growth may not be spectacular. But it’s proven to be fairly consistent. And when paired with a cash-rich balance sheet and expanding gross margins, it’s not hard to understand why Buffett and his team have been drawn in.

However, looking at the valuation, it’s clear Buffett was willing to pay a premium. On a price-to-earnings basis, the stock trades close to 28.7. And even on a forward basis, it’s not that much cheaper. In the meantime, the UK Domino’s Pizza shares are only priced at around 17.7 times earnings. So is this the better buy?

Pizza sales in the UK

It’s important to note that the UK version is a separate business and not a secondary listing. It controls the master franchise agreement to own, operate and franchise Domino’s locations across the UK and Ireland. And, so far, its success story seems pretty similar to that of the US.

It currently controls an estimated 7.2% of the entire British takeaway market and has been steadily increasing its dominance over the last few decades. Subsequently, since 2004, shareholders have reaped an enormous near-2,700% return, including dividends.

Given that the demand for pizza in the UK’s on the rise, the long-term potential for this enterprise seems rock solid. Of course, it’s also facing stiffer competition, with the likes of Greggs entering the pizza space. And while shares are priced cheaper versus their American counterpart, the UK and Irish markets are also considerably smaller.

The disposable income of Americans has generally been much higher than that of Britons. So Buffett’s team seems to have sided with the US business despite the higher price tag. Personally, I have to agree with this conclusion.

I think the company is potentially worth a closer look for those seeking exposure to the restaurant industry. However, for my portfolio, restaurants aren’t a great fit. So I’m not looking to invest in either of these businesses right now.

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During the third quarter of 2024, Buffett made some adjustments to his existing positions at Apple and Bank of America. But he’s also added two new businesses to his portfolio: Pool Corp and Domino’s Pizza (NYSE:DPZ).

Given his tremendous track record, should investors follow in his footsteps and buy shares in these businesses?

Digging into the details

Out of the two businesses, Buffett seems more bullish on Domino’s when looking at the amount of capital invested in each. Roughly $150m was spent buying 404,000 shares of Pool. However, closer to $550m was allocated to the pizza franchise chain. So let’s zoom in on the latter.

Despite being in the restaurant business, Domino’s Pizza was actually one of the top-performing stocks in the 2010s. After revamping its recipe and launching a digital ordering and delivery tracking system, sales and earnings soared. And between 2010 and 2020, that translated into the share price skyrocketing by almost 2,400%! And don’t forget about the extra gains from dividends as well.

Today, the demand for pizza remains strong. Yet the shares seem to have lost their momentum, climbing by only around 10% over the last four years. So is this Buffett taking advantage of an under appreciated business trading at a fair price?

Why did Buffett buy Domino’s?

We’ll have to wait until the next earnings meeting to find out exactly what Buffett’s thinking here. Nevertheless, we can still make some educated guesses.

For starters, Domino’s definitely seems to have a wide competitive moat that Buffett loves to see. The group has a well-respected brand with a reputation for quality and an industry-leading online ordering system that provides real-time updates, ensuring the best possible experience for customers.

When leveraging the regular offers and discounts, the pizzas are also priced attractively. As such, demand didn’t take much of a hit, even as inflation went rampant throughout the US economy in recent years. The result was pretty resilient earnings that have continued their upward trajectory.

What about the valuation? This is where Buffett seems to divert from his usual strategy. Why? Because Domino’s Pizza currently trades at a price-to-earnings ratio of 26.5. By comparison, the industry average is closer to 21, suggesting that the stock’s a bit on the pricey side.

As such, the shares could be a bit volatile if earnings were to fall short of expectations – something that’s happened before. This premium valuation may also be justified, given the quality of the underlying business. Yet there’s also the risk of self-cannibalisation to consider.

With so much growth under its belt already, international expansion may be the only effective lever left in management’s growth toolkit. And that also opens the door to currency exchange risks.

Personally, I’m not tempted to add this business to my portfolio right now. Buffett might have spotted something that everyone else has missed. But until investors gain insight into this investment decision, it’s impossible to know for certain. The same is true with Pool Corp.

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In Q3, one big move made by Buffett — or more likely one of his investing lieutenants, Ted Weschler and Todd Combs — was the purchase of Domino’s Pizza (NYSE: DPZ).

Berkshire scooped up 1.27m shares of the pizza restaurant chain, worth roughly $550m.

The stock has been a massive long-term winner, rising 5,520% in the past 15 years (excluding dividends).

What’s so attractive about this stock?

I see a number of things that make this a classic Buffett/Berkshire buy. For starters, Domino’s is the world’s leading pizza company, with more than 20,500 locations worldwide.

Crucially, it has an instantly recognisable brand. Buffett loves strong brands, as his 36-year holding in Coca-Cola proves. Top brands normally enjoy pricing power, enabling them to raise prices without losing customers, thereby enhancing profitability.

Both companies operate a franchising model (Coca-Cola for bottling and distribution, and Domino’s for its restaurants, though it still runs a few itself here and there).

This means it generates revenue through royalties and fees paid by franchisees, as well as ingredients and equipment supplied to these store owners through its supply chain operations business (61% of revenue).

Buffett also loves dividends, and Domino’s pays one. While the yield is only 1.35%, the payout has grown at an average of about 19% per year over the past decade.

Finally, Buffett said: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price“. This simply means it’s better to invest in a business that’s both wonderful and fairly priced than a fair one trading at a premium.

Right now, the stock’s price-to-earnings (P/E) ratio is about 25. This places it at the lower end of its 10-year historical P/E range, as illustrated in the chart below.

This suggests we’re looking at a high-quality company that’s fairly valued.

Mature and competitive market

One risk here is that the pizza market is extremely competitive. Speaking personally, I get the odd Domino’s, but I also use my local pizza shop (which is way cheaper but still tasty).

Meanwhile, Greggs does a fantastic pizza box deal, delivered almost as quickly as Domino’s. So I’m spoilt for choice, much to the detriment of my waistline.

It’s also quite a mature market, and analysts expect the pizza maestro’s revenue to grow at about 6% over the next few years. Operating profit a bit higher, at around 8%.

UK-listed alternatives

The FTSE 250 has a Domino’s Pizza, which is the master franchisee for the brand in the UK and the Republic of Ireland. That stock is a little cheaper, trading on a P/E ratio of 17.7.

Another one is DP Poland, which holds exclusive rights to the brand in Poland and Croatia. This is a loss-making penny stock, making it by far the riskiest choice here.

However, this is the one I’ve chosen over the other two. The firm is growing rapidly and moving towards a sub-franchise model. I think it has a lot of potential at 10p.

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Fresh out the kitchen

Let’s start with a new stock addition. The notable one was a $557m notional buy of Domino’s Pizza (NYSE:DPZ), equating to almost 1.28m shares.

I can understand why this might have ticked a lot of boxes for Buffett and his team over at Berkshire. Buffett’s famous for liking consumer staple businesses that have a strong track record over a long time. Domino’s was founded in 1960 by two brothers in Michigan. It has expanded over the decades, but essentially is still tied to making a simple product (pizza) well.

Buffett also likes value stocks. Even though I wouldn’t say Domino’s is very undervalued at the moment, it has lagged the broader market performance. Over the past year, the stock’s up 15%, but not close to even 52-week highs. This compares to the 30% gain from the S&P 500 that’s made fresh highs on a regular basis this year.

However, I’m not that interested in following suit and purchasing now. I don’t see anything that exciting going on at the company. Q3 results showed revenue growth of 5.1% versus the same period last year, with net income down 0.5%. This doesn’t strike me as a company that’s pushing ahead, or one that’s seeing an influx of customer demand.

Not as pretty

On the flipside, Berkshire Hathaway reduced it’s holdings in Ulta Beauty (NASDAQ:ULTA) almost completely. This comes after buying over $260m worth of the stock just the quarter before.

The stock’s down 10% over the past year, but from my rough calculations Buffett hasn’t lost money on this based on when he likely bought and sold.

It’s unusual for the company to trade in and out of a holding over such a short period, so maybe there’s something we aren’t aware of right now. However, based on the information I have, I don’t agree with the move.

It’s true that Ulta has been under pressure recently with tougher competition in the beauty space. However, the latest Q2 results showed several positive signs. The Q3 results are due out in a couple of weeks so I’m surprised Berkshire and Buffett didn’t wait for this update before making a more informed decision.

Certainly as a long-term investor, I’d be waiting for more information before making this call. Admittedly, I don’t own the stock, so ultimately can’t fault Buffett as he’s the one with skin in the game.

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In and out quickly

The stock Buffett sold was Ulta Beauty (NASDAQ: ULTA). It’s an American make-up and skincare chain that sells products from a vast range of brands. Filings show he sold 665,903 shares, equating to 96.5% of his holding.

This is an unusual move for Buffett. The reason I say this is that he only bought Ulta a few months ago. And in the past, he’s stressed the importance of long-term investing and said his favourite holding period’s ‘forever’. So I’m not sure what’s happened here.

Maybe his team sees risks around rising levels of competition in the beauty space? This could potentially slow the company’s growth in the years ahead.

Personally, I think this stock still looks quite attractive. For starters, it sells products that are in high demand in today’s social media-focused world. According to Grand View Research, the global cosmetics market’s set to grow by over 6% a year between now and 2030.

Secondly, it’s very profitable. Last financial year (ended 31 January 2024), return on capital was over 40%. Third, the valuation seems very reasonable. Currently, the forward-looking price-to-earnings (P/E) ratio is just 16.

Given these positives, I haven’t ruled out investing in this company.

Grabbing a slice of Domino’s

Looking at his recent buys, one that stands out to me is Domino’s Pizza (NYSE: DPZ), the well-known restaruant chain that operates a franchising model. In Q3, Buffett bought 1.27m shares. That equates to around $550m worth of stock at today’s share price.

This is an interesting move, in my view. There’s certainly a lot to like about Domino’s from an investment perspective. Not only is it very profitable (return on capital last year was 73%) thanks to its huge brand but it also has a long track record when it comes to generating wealth for investors.

However, the stock’s quite expensive. Currently, the P/E ratio here’s about 26. That earnings multiple doesn’t leave much room for error. If earnings miss estimates, the stock could take a tumble.

I’m wondering if Buffett would have been better off grabbing a slice of the UK-listed version of Domino’s Pizza (LSE: DOM)? It holds the master franchise agreement to own, operate, and franchise Domino’s stores in the UK and the Republic of Ireland, and it has been a great investment in the long run.

This stock’s a fair bit cheaper than its US-listed peer. Currently, the P/E ratio is only 16.9, a far more attractive valuation.

Of course, this company’s markets are much smaller than those of its US-listed peer. So there’s less growth potential. And disposable income here in the UK is far lower than in America today. So it may not perform as well as the US-listed stock in the years ahead.

Still, the valuation gap’s significant. So, I think the stock is worth considering today.

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