Given his great track record of consolidating capital as CEO Berkshire HathawayWarren Buffett is an investment legend. It makes sense that professional and amateur investors follow his portfolio closely to find potential new ideas for allocating their money.
Among the dozens of companies that Buffett owns, there is a top drinks stock that 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 held a stake in Coca-cola (NYSE: KO) for about four decades. Today, it represents 8.4% of the conglomerate's public equities portfolio. It does not take much to understand some distinctive features that make the soft drinks giant a high-quality enterprise.
Coca-Cola has a durable competitive advantage with its brand name. With a presence in more than 200 countries and territories worldwide and a 40% market share of the non-alcoholic ready-to-drink industry, the business is highly regarded by consumers who have come to trust in the consistency that Coca-Cola offers.
One important characteristic that Buffett considers is whether a company has the ability to consistently raise prices, otherwise known as pricing power. Coca-Cola fits the description. In the last quarter (Q3 2024 ended September 27), unit volume fell 1% year-on-year but was offset by a 10% price increase. Managers have the ability to combat inflationary pressures by asking customers to pay more over time. Not many companies are so lucky.
In addition, Coca-Cola is extremely profitable. Over the past decade, its operating profit has averaged a fantastic 26.8%, which shows how much of its sales base trickles down to the bottom line.
All these positive qualities are probably the key reasons Berkshire has been a long-time shareholder in Coca-Cola. I would also argue that the fact that this is such a boring business also contributes to Buffett's positive view. There is virtually no risk of the company being disrupted anytime soon – if at all.
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 making strategic decisions.
Coca-Cola may dominate the global drinks industry, but that doesn't mean it's been a winning investment. Over the past five years and 10 years, the shares have produced total returns of 33% and 105%, respectively. These figures seriously lag the wider S&P 500performance during those two periods of time.