Junk food lover Warren Buffett’s new pizza investment fits perfectly in Berkshire’s portfolio

Warren Buffett, a celebrated lover of junk food, just bought into a national pizza chain whose shares are trading near their cheapest level of the 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 top $300 billion — Buffett’s investing lieutenants Ted Weschler and Todd Combs may be behind the investment. Whosever original idea, Domino’s Pizza is in keeping with other, long-standing investments by the sprawling Omaha-based conglomerate. Berkshire already owns 100% of See’s Candies and Dairy Queen , and counts Coca-Cola and Oscar Meyer hot dog-parent Kraft Heinz among its top equity holdings. Buffett, a 94-year-old billionaire known for childlike dietary habits, has famously said he would happily drink five cans of Coke and eat McDonald’s every day. Yet, despite the seemingly indulgent diet, Buffett remains in good health. “I eat like a 6-year-old,” the Berkshire CEO once said. “I’m one quarter Coca-Cola,” Buffett famously quipped. In 2014, Berkshire invested $3 billion in shares of Restaurant Brands International , owner of Burger King and Tim Hortons and in the 1990s owned a large position in McDonald’s. DPZ YTD mountain Domino’s Pizza shares have trailed the S & P 500 this year. Value bet Domino’s fits into Berkshire’s value investment philosophy, focused on cash flow and price-to-earnings and price-to-book-value yardsticks. At the same time, Berkshire may have simply taken advantage of a steep sell-off in Domino’s in July, when it slumped 17%. One day, shares in the world’s largest pizza chain plunged more than 13%, its worst decline since 2008, after telling investors that sales would miss an original forecast and fewer new stores would open overseas than originally planned. As a result, Domino’s price-to-earnings ratio fell to 23.7, the lowest this year, according to FactSet data. Pizza wars The pizza chain has struggled with comparable sales growth in the U.S. as competition for cost-conscious customers mounts. “Near-term fundamentals remain under pressure,” said Jeffrey Bernstein, a Barclays Capital analyst. “Similar to the ‘burger wars’ of years past, management believes we are now in the midst of ‘pizza wars’, with all focused on incremental value.” Even after Berkshire’s disclosure boosted Domino’s stock, it’s still up just about 10% this year, far behind 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 that the company didn’t have much to add. “We don’t believe they spoke with Warren,” Bernstein told CNBC, referring to Domino’s management, but executives probably “received questions from the conglomerate ahead of the stake being announced.”