Coca-Cola (NYSE:KO) is Warren Buffett’s longest-held stock and one of his favorites. Its holding company, Berkshire Hathawayfirst bought Coke shares in 1988 and owns 400 million shares.
The big news revealed at Berkshire Hathaway’s annual meeting last week was that it was selling 13% of its stake in Apple. While that sounds telling, and it is, Apple remains by far the company’s largest holding, down from about 50% to 40% of the total portfolio. But even though Buffett said Apple was a better company than Coca-Cola and… American Expresshis other old favorite, he has never sold a share of Coke or American Express.
Let’s see what he said about Coca-Cola and how that might influence your opinion of it as an investor.
A trio of forever stocks
Buffett often groups Coca-Cola and American Express together. He praises their dominance and how they have carved out exceptional niches in their sector, with strong moats and leadership. He recently added Apple to create a trio of favorite stocks, or as he would say, companies. He reiterated that he invests in companies, not stocks, and explained that his longtime partner Charlie Munger, who passed away last year, helped him shift his mindset to researching a company rather than paying attention to the market .
“And that’s kind of the story of why we own American Express, which is a wonderful company,” he said. “We own Coca-Cola, which is a great company, and we own Apple, which is an even better company.”
He further explained what he finds so compelling about Coca-Cola:
No company does business around the world as well as Coca-Cola. I mean, they’re the soda of choice. You know, like maybe 170 or 180 out of 200 countries. Those are probably rough approximations from a few years ago, but the level of adoption worldwide is, I think, almost unprecedented.
Coca-Cola’s global acceptance means it has high sales and is very difficult to beat. That’s a lock that ensures survival, and as long as the company remains strong, Coca-Cola should continue to perform well, keep its dividend high and grow.
Where does Coca-Cola stand today?
Coca-Cola remains the largest beverage company in the world, with sales of $46 billion last year. It has successfully raised prices on many of its products as loyal customers are willing to spend money for their favorite drink. That’s the kind of brand that Coca-Cola has developed over time. It has built relationships with customers that lead to reliable sales, giving the company resilience in difficult times. This is the quality that Buffett describes.
Management has recently made some changes to become an even stronger company. It removed half of its brands, about 200 in total. These were mostly local brands that accounted for less than 2% of the volume and 1% of the turnover. Consider this: half of the brands accounted for less than 1% of sales. No wonder management decided to do away with them and refocus resources on better performing brands.
This is what Buffett is talking about when he mentions that Coca-Cola is a global company. The stronger a company’s global brand presence, the harder it is to fall out of place. The more Coca-Cola focuses on its big, global core brands, the stronger it becomes.
Invest like Buffett
Investors can talk about quarterly earnings and profitability and adjust their positions accordingly. Or you can think about the business the way Buffett does. “It’s such a simple approach that it’s almost misleading,” he said. “Most things, if you keep working harder at them… but investing, you don’t really have to do that. You really have to think carefully.”
This is a useful paradigm when considering any stock. It can help investors think outside the short-term framework and focus on the long term, where investors can reap the real rewards of successful investing.
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American Express is an advertising partner of The Ascent, a Motley Fool company. Jennifer Saibil holds positions at American Express. The Motley Fool holds positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.
Should You Buy Coca-Cola Stock? Read what Warren Buffett just said about it. was originally published by The Motley Fool
