Warren Buffett’s Berkshire Hathaway recently sold its entire position in the Vanguard S&P 500 ETF and the only other index fund it held, which was also an S&P 500 index fund. These funds track the S&P 500, widely considered the best gauge for the overall U.S. stock market. The sale of these positions could be interpreted as lost confidence in the U.S. economy, but that is unlikely given Buffett’s longstanding advocacy for S&P 500 index funds.
One possible explanation for the sale is the small size of these positions in Berkshire’s portfolio, accounting for less than 0.02% of the total. It’s possible that Buffett chose to consolidate these small positions into a larger cash reserve in anticipation of future market opportunities. The S&P 500, with its high price-to-earnings ratio of 26.1 times compared to its 10-year average of 22.1 times, may be considered overvalued by Berkshire’s standards.
However, the index is still expected to continue delivering solid long-term returns.
Buffett’s recent portfolio adjustments
In contrast to selling the index funds, Berkshire increased its stake in Domino’s Pizza, a stock that has returned 7,120% since January 2010.
Domino’s operates in the highly competitive quick-service restaurant space and has established itself as the largest pizza company in the world through value offerings and technological innovations. Domino’s aims to expand further with its “hungry for more” strategy, targeting yearly growth of 1,100 additional stores and annual sales and operating income increases of 7% and 8%, respectively. Last year, despite a competitive environment, Domino’s reported same-store growth of 3.2% domestically and 1.6% internationally.
Wall Street projects Domino’s earnings growth of 9% annually through 2028, but the company aims for an even higher 8% growth in operating income, coupled with regular stock repurchases, which could drive faster-than-expected earnings growth. The company has also consistently raised its dividend, with a 17% annual increase over the last five years, including a recent hike to $1.74 per share. Investors considering Domino’s should start with a small position and look to add more shares during price dips.
Given its consistent performance, growth strategy, and shareholder returns, the stock presents a compelling long-term investment opportunity.
Image Credits: Photo by Kelly Sikkema on Unsplash
