Ackman prefers Domino’s Pizza stock over Starbucks: Here’s why

Billionaire investor Bill Ackman said during The Wall Street Journal’s Future of Everything Festival on Wednesday that his hedge fund sold its entire stake in Starbucks (NASDAQ: SBUX) and replaced it with a 6% stake in Domino’s Pizza (NYSE: DPZ).

Starbucks shares tanked close to 1.5% in premarket trading on Wednesday and lost another 1.5% on market open. Including the price action, the stock is now exchanging hands at £78.43 per share versus a low of £68.84 per share in the last week of January.

Pershing Square owned over £710 million worth of Starbucks shares

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Starbucks recovered from the unprecedented hit related to the Coronavirus pandemic in recent months, after which, Ackman said, Pershing Square sold its shares. The hedge fund had a stake worth more than £710 million in Starbucks. In the last week of January, the coffee chain said its revenue slid 5% in the fiscal first quarter.

A pullback in Domino’s shares at the same time created a fine buy opportunity that the hedge fund didn’t miss.

“We sold Starbucks. It got to a price that it was hard to earn the excess return we like to earn. The stock just recovered too quickly.”

Ackman highlighted on Wednesday that he started buying Domino’s at roughly £234.66 per share, when the stock slipped dramatically for no apparent reason in the first week of March. As per the billionaire investor:

“We didn’t get as much as we would like, but we own a little under 6%. Domino’s is a pure franchising company, and interestingly, they were the first to invest in technology and delivery. They own their delivery infrastructure, and they don’t need to rely on the DoorDashes of the world.”

Retail, restaurant and hotel industries are Pershing’s best bets right now

The retail, restaurant and hotel industries have been the top favourites for Pershing Square amidst recovery from the COVID-19 driven hit. At the end of 2020, the hedge fund’s biggest bets included Chipotle, Restaurant Brands, Hilton, and Lowe’s.

Domino’s shares opened at £298.66 in the stock market on Wednesday and are currently exchanging hands at £304.84 after hitting an intraday high of £312.75. In comparison, the American multinational pizza restaurant chain had started the year 2021 at a lower £269.86 per share. Learn more about how to invest in the stock market.

At the time of writing, Domino’s Pizza is valued at £11.88 billion and has a price to earnings ratio of 34.85.