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S&P 500   5,011.12
DOW   37,775.38
QQQ   423.41
What's Driving Tesla Lower Ahead of its Earnings?
How major US stock indexes fared Thursday, 4/18/2024
3 Steel Stocks Could Soar on New China Tariffs
CSX Co.: The Railroad Powering Ahead with an Earnings Beat
Bear Market Funds to Watch This Year
Shares of Walmart-backed Ibotta soar on public debut
Closing prices for crude oil, gold and other commodities
S&P 500   5,011.12
DOW   37,775.38
QQQ   423.41
What's Driving Tesla Lower Ahead of its Earnings?
How major US stock indexes fared Thursday, 4/18/2024
3 Steel Stocks Could Soar on New China Tariffs
CSX Co.: The Railroad Powering Ahead with an Earnings Beat
Bear Market Funds to Watch This Year
Shares of Walmart-backed Ibotta soar on public debut
Closing prices for crude oil, gold and other commodities
S&P 500   5,011.12
DOW   37,775.38
QQQ   423.41
What's Driving Tesla Lower Ahead of its Earnings?
How major US stock indexes fared Thursday, 4/18/2024
3 Steel Stocks Could Soar on New China Tariffs
CSX Co.: The Railroad Powering Ahead with an Earnings Beat
Bear Market Funds to Watch This Year
Shares of Walmart-backed Ibotta soar on public debut
Closing prices for crude oil, gold and other commodities

Domino’s stock or Papa John’s? Follow price action to find out

Domino's or Papa Johns stock

Key Points

  • Now that the FED is creating uncertainty around the timing of potential interest rate cuts, investors may look into safer places in the economy to place their buying power yet still get a decent growth profile.
  • Domino's Pizza and Papa John's are the stocks that fit the profile of the best of both worlds in this uncertain environment.
  • There can be only one price action, and institutional buyers tell you which one is left standing.
  • 5 stocks we like better than Prudential Financial

Most of the market is now focused on the hype in the high-flying technology stocks today, where names like NVIDIA NASDAQ: NVDA keep delivering insane financial results to help the stock break past all-time highs repeatedly. However, there is value to be had in the ‘defensive’ stocks, characterized by their immunity to the underlying business cycle; here’s why that is the case today.

The Fed announced that it would be looking to cut interest rates this year, where initially, the market began to price in these expectations by March. Now, the comments indicate that there will be no cuts coming in March but instead by May or June of this year, a trend you can see in the FedWatch tool offered by the CME Group NASDAQ: CME.

Because of this uncertainty surrounding the timing of the interest rate decisions, which act as the main driver of the underlying business cycle, indecision on interest rate direction does mean indecision on the direction of cyclical stocks, which is one of the reasons why stocks like Domino’s Pizza NYSE: DPZ and Papa John’s NYSE: PZZA could soon attract some investor attention, but more on that later.

Postponed rotation

Knowing what you know now, it would be easier to understand that investors and traders would look into the more active names like consumer discretionary stocks. Since the timing of these interest rate cuts is now up for discussion, these same investors would likely look for safety in less volatile sectors.


But what if you could get the best of both worlds here? By being part of the Consumer Discretionary Select Sector SPDR Fund NYSEARCA: XLY and the food sector, Domino’s and Papa John’s could provide the safety of a non-cyclical business with the exciting stories found in the opposing cyclical stocks.

Because the consumer discretionary sector has underperformed the broader S&P 500 index by as much as 5.3% over the past six months, there is a bit of a performance gap to be filled for the sector to catch up to the rest of the market. Which of the two stocks could prove to be the more attractive proposition?

Keep in mind that it is safety that you are seeking in this environment, at least until there is a clear direction as to where the FED may swing interest rates.

Regarding the food services industry, the ISM services PMI index shows three straight months of expansion activity, putting the odds in your favor for an earnings beat in that space. Finding the growth area within the discounted consumer discretionary sector, it is time to look for safety.

Volatility typically brings risks to investment, so you want to look for the low-beta stock in this group to give you the best return with the least risk possible. Anything above 1.0 is considered risky, while anything below it is considered safe.

Domino’s stock inherits a beta of only 0.84; check for safety. On the other hand, Papa John’s has a beta of 1.18, which is not the best option if you are looking for a smooth ride.

Does the market agree?

Domino’s stock trades at 99.0% of its 52-week high, which could be a new momentum leg for it to flirt back with its all-time high price of $567.6 a share, not seen since 2021. Papa John’s stock sits at only 81.0% of its 52-week high prices.

It is clear where the market is willing to put its money to work in between the two, but here’s more evidence to back that view.

It isn’t only retail investors willing to buy Domino’s stock; The Goldman Sachs Group NYSE: GS and Prudential Financial NYSE: PRU have increased their stakes in the stock by as much as 13.1% and 169.0%, respectively. More than that, the market keeps valuing the stock in a way that represents a further bullish view.

While Papa John’s stock trades at a price-to-earnings ratio of 25.7x, Domino’s is commanding a 7.3% premium in its higher 27.6x multiple. The saying “It must be expensive for a reason” applies here, and now you have a better idea of what that reason is.

A low beta with favorable price action, operating in a sector that will likely report growth in financials (per the PMI trends), you can’t deny that there is a bit more juice to squeeze in Domino’s, at least that could potentially be the case for you until the FED comes back with a more specific direction.

Should you invest $1,000 in Prudential Financial right now?

Before you consider Prudential Financial, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Prudential Financial wasn't on the list.

While Prudential Financial currently has a "Reduce" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

7 Stocks to Buy And Hold Forever Cover

Click the link below and we'll send you MarketBeat's list of seven stocks and why their long-term outlooks are very promising.

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Consumer Discretionary Select Sector SPDR Fund (XLY)N/A$171.26-0.6%0.79%N/AHold$0.07
NVIDIA (NVDA)
4.8908 of 5 stars
$846.71+0.8%0.02%70.91Moderate Buy$940.30
CME Group (CME)
4.5394 of 5 stars
$209.65+0.6%2.19%23.64Hold$215.70
Domino's Pizza (DPZ)
4.5485 of 5 stars
$481.66-0.1%1.25%32.83Moderate Buy$460.90
Papa John's International (PZZA)
4.0864 of 5 stars
$61.35+0.7%3.00%24.94Hold$82.10
The Goldman Sachs Group (GS)
4.5304 of 5 stars
$403.11-0.2%2.73%15.74Moderate Buy$434.93
Prudential Financial (PRU)
4.8925 of 5 stars
$108.70+1.3%4.78%16.25Reduce$111.33
Compare These Stocks  Add These Stocks to My Watchlist 

Gabriel Osorio-Mazilli

About Gabriel Osorio-Mazilli

  • gosoriomazzilli@gmail.com

Contributing Author

Value Stocks, Asian Markets, Macro Economics

Experience

Gabriel Osorio-Mazilli has been a contributing writer for MarketBeat since 2023.

Areas of Expertise

Value investing, long/short trading, options, emerging markets

Education

CFA Level I candidate; Goldman Sachs corporate training; independent courses

Past Experience

Analyst at Goldman Sachs, associate at Citigroup, senior financial analyst in real estate


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