Given his fantastic track record of compounding capital as CEO of Berkshire HathawayWarren Buffett is an investing legend. It makes sense for both professional and amateur investors to keep a close eye on their portfolio to find potential new ideas for allocating their money.
Among the dozens of companies that Buffett owns, there is one of the main beverage broth That has fallen in recent months and is now trading 14% below its September all-time high. Does this mean it’s time to buy this business before 2025?
Berkshire Hathaway and Warren Buffett have had a stake in Coca-cola (NYSE: KO) for about four decades. Today it represents 8.4% of the conglomerate’s public stock 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 worldwide and a 40% market share in the ready-to-drink non-alcoholic beverage industry, the company is highly regarded among consumers who have come to rely on the consistency that offers Coca-Cola.
An important trait that Buffett considers is whether a company has the ability to increase prices consistently, also known as pricing power. Coca-Cola fits the description. Last quarter (Q3 2024 ended September 27), unit volume decreased 1% year over year, but was offset by a 10% price increase. Management has the ability to combat inflationary pressures by asking customers to pay more over time. Not many companies are so lucky.
Additionally, Coca-Cola is extremely profitable. Over the last decade, its operating margin has averaged a magnificent 26.8%, demonstrating how much of its sales base flows into the bottom line.
All of these positive attributes are probably the key reasons why Berkshire has been a long-time Coca-Cola shareholder. I would also say that the fact that it is such a boring business also contributes to Buffett’s positive outlook. There is virtually zero risk of the company experiencing disruption anytime soon, if ever.
In other words, there is no threat of obsolescence, which can be viewed favorably in today’s rapidly 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 in making strategic decisions.
Coca-Cola may dominate the global beverage industry, but that doesn’t mean it was a winning investment. Over the past five- and ten-year periods, the stock has generated total returns of 33% and 105%, respectively. These figures are far behind the broader ones. S&P 500performance during those two time periods.