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Given his fantastic track record of compound capital as CEO of Berkshire HathawayWarren Buffett is an investing legend. It makes sense for professional investors and hobbyists alike to keep a close eye on their portfolio for potential new ideas for where to put their money.
Among the dozens of companies that Buffett owns, there is a top one stock of drinks which has fallen in recent months and is now trading 14% off its all-time high in September. Does this mean it’s time to buy this business before 2025?
Berkshire Hathaway and Warren Buffett have a stake Coke (NYSE: KO) for about four decades. Currently, it represents 8.4% of the conglomerate’s variable income portfolio. It doesn’t take much to understand some notable features that make the soft drink giant a high-quality company.
Coca-Cola has a lasting competitive advantage with its brand name. With a presence in more than 200 countries and territories around the world and a 40% market share of the ready-to-eat soft drinks industry, the business is highly valued by consumers who have come to trust the consistency that Coca- glue
An important trait that Buffett considers is whether a company has the ability to consistently raise prices, also known as pricing power. Coca-Cola fits the description. Last quarter (3Q 2024 ended September 27), unit volume was down 1% year-over-year, but was offset by a 10% price increase. Management has the ability to fight inflationary pressures by asking customers to pay more over time. Not many companies are so lucky.
Also, Coca-Cola is extremely profitable. Over the past decade, its operating margin has averaged an excellent 26.8%, showing how much of its sales base flows into the bottom line.
All of these positive attributes are likely the key reasons why Berkshire has been a Coca-Cola shareholder for a long time. I’d also argue that the fact that it’s such a boring business also contributes to Buffett’s positive outlook. There is virtually zero risk that the company will be disrupted anytime soon, if ever.
In other words, there is no threat of obsolescence, which can be viewed favorably in today’s fast-changing, technology-driven economy. This also adds a high level of predictability to Coca-Cola’s business model, making the leadership team’s job much easier for strategic decision-making.
Coca-Cola might dominate the global beverage industry, but that doesn’t mean it’s been a winning investment. Over the past five and ten years, the stock has generated a total return of 33% and 105%, respectively. These numbers are seriously lagging behind overall S&P 500the performance of during these two time periods.
