The Optimistic Investor #4

I am often asked about my favorite investing books.

"One Up on Wall Street" by Peter Lynch, "The Psychology of Money" by Morgan Housel, and "A Random Walk Down Wall Street" by Burton Malkiel would all make the cut.

However, my favorite well of investing knowledge isn’t a book—it’s the musings of the world’s most successful and famous investor: Warren Buffett.

His annual shareholder letters and meetings are packed with brilliant nuggets of wisdom, reminding you of the importance of long-term investing, buying what you know, and not feeling too bad if (or when) you miss a big winner. (The man passed on Google and Apple in 2012, after all.)

When it comes to finding winning businesses, The Oracle has outlined a long list of quantitative characteristics to look for: fair valuation, consistent earnings growth, strong cash flow, and a dedication to reinvestment.

But one of his favorite attributes can’t be so easily measured or graphed: a beloved brand.

According to Buffett: “If you’ve got a terrific brand and you protect it, you’ve got a fabulous asset.”

We all have them in our lives. A name-brand logo that keeps us away from the competition and the generics. Somehow, whether through quality, legacy, or just creative marketing, a business has convinced you that they’re the best. You have a special connection.

Sometimes, a business manages to have this relationship with a lot of people. When that happens, it grants them an impressive moat and an astonishing market share. Think of Coca-Cola (controls 41% of the soda market), Heinz (60% of the American ketchup market), or Kellogg (30% of the cereal market). One of Buffett’s favorite examples is Gillette, which was the second razor manufacturer to launch a stainless steel blade—yet superior branding carried it to a 54% market share.

This week, Warren bought into two more big brands (thank you, Berkshire 13F), and I want to talk about their long-term outlook—especially their brand.

Buffett loves a strong brand, but he also acknowledges that buying one often comes at a premium. That’s why his $1.24 billion stake in Constellation Brands (STZ) looks so appealing.

Constellation owns Corona, Modelo, and Pacifico, three of the most recognizable beer brands in the U.S. While the company also has a wine and spirits division, beer makes up the lion’s share of revenue—83% of sales to be exact. And it’s the beer business that’s thriving.

Modelo recently became the best-selling beer in the U.S., overtaking Bud Light, while Corona consistently ranks in the top five. Pacifico, meanwhile, is gaining traction and is on track to crack the top ten. Unlike some competitors who have relied on price increases to maintain growth, Constellation has managed to expand through increasing volume, showing genuine demand.

So why is the stock down 30% this year?

Despite solid Q3 earnings—beer sales up 3% to $2.03 billion with a 37.9% operating margin—the stock has been hammered due to broader concerns in the alcohol industry.

• Generational Shifts: Younger consumers are drinking way less, and when they do, they’re reaching for cheaper beer and hard seltzers over spirits and wine.

• Pricing Pressure in Premium Alcohol: For years, "premiumization" was a tailwind, but high-end liquor sales are now falling, with the $100+ price tier down 12.5% in bars and 8.5% in retail. 

And most significantly for Constellation: 

• Tariffs: 85% of Constellation’s revenue comes from Mexican imports, and potential tariff increases could squeeze margins. A 25% tariff would be tough to fully pass on to consumers.

The good news? Constellation is well-positioned despite these trends. It dominates the growing U.S. beer market while having minimal exposure to the struggling wine and spirits segment. The rise of non-alcoholic beer is another tailwind—Corona Zero is a key growth driver according to management. 

And then there are the tariffs but let’s throw it back to Buffett: 

When asked about tariffs during Trump’s first administration, he downplayed the likelihood of a full-scale trade war. Given his long history of successful bets on consumer brands, it’s worth considering that he sees the recent pullback in Constellation as an overreaction.

With the stock trading at a discount compared to sector peers on a forward P/E basis, this could be a rare opportunity to grab a winning brand on sale.

Buffett also increased his stake in Domino’s Pizza (DPZ)—another well-known brand, and one of the most fascinating success stories on Wall Street.

Since its IPO in 2004, Domino’s stock has surged 35x. 

Buffett first bought in Q3 of last year and has now significantly increased his position. It checks all his boxes: a dominant American brand, strong unit economics, and an asset-light model.

99% of Domino’s stores are franchised, meaning the company collects high-margin franchise fees while also profiting from selling ingredients and equipment to franchisees. Internationally, they take it a step further, partnering with a single master franchisee to oversee entire regions.

That’s not a restaurant business—it’s a branding and logistics powerhouse.

So why did the stock dip last year?

Domino’s cut its forecast for international store growth, citing slower-than-expected expansion in Japan and France. But long-term, management remains extremely bullish.

• International Growth Potential: Currently at 14,000 international stores, with ambitions to hit 40,000—with China and India as major growth markets.

• U.S. Expansion: Nearly 900 new store openings are planned over the next five years.

• Market Share Dominance: Domino’s controls 25% of the U.S. pizza market, but CEO Russell Weiner points out that leading companies in other industries often claim 50%+ market share—so there’s still room to grow.

And as inflation continues to linger, Domino’s remains one of the best value meals around.

By the numbers:

• $16 billion market cap

• P/E just under 30x

• 19% operating margin

• 4-5% revenue growth in recent years, with profit growth closer to 10%, showing strong operating leverage

• 55% return on capital over the last 12 months

• 1.3% dividend yield, consistently growing

The only real red flag? $5 billion in debt, which is nearly one-third of the market cap. But with consistent cash flow and a high-margin business model, Domino’s should be able to manage it.

Even with its recent pullback, Buffett clearly believes Domino’s still has a long runway for growth.

As you can see, Buffett loves a well-maintained brand—especially in the food sector. But his thinking can certainly be applied to other industries.

Where would Apple be without its premium branding? Is the iPhone really worth more than its cheaper Android competitors? Or is it all in the logo?

How will Netflix’s brand perception change as it reduces content spending and focuses more on budget and reality programming? Will Disney’s brand be harmed by its recent commitment to live-action remakes?

How did Uggs and Crocs recover their brand perception, but Under Armour didn’t? And which road will Nike go down?

How did CrowdStrike’s brand survive its massive outage in the summer of 2024? Or do IT insiders still hold reservations?

These questions are nuanced, and everyone will have a different opinion—but these are the kinds of things investors should be asking themselves and others.

Brand value is incredibly hard to measure and predict. But staying in the loop will make you a better investor.