We recently compiled a list of the 12 best long-term stocks to buy according to Warren Buffett. In this article, we are going to take a look at where The Coca-Cola Company (NYSE:KO) stands against the other long-term stocks to buy according to Warren Buffett.
Warren Buffett, the most famous investor on Wall Street, needs no introduction, having generated billions of dollars for himself and investors for decades. Throughout his investment career that began in 1965, the ‘Oracle of Omaha’ has averaged annual returns of 19.8%, trumping a gain of 9.9% for the S&P 500 over the same period.
The market-beating performance has propelled Buffett to the top of the charts as one of Wall Street’s most revered and followed investors. His investment portfolio is always tracked as investors scan for potential market opportunities.
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Likewise, Buffett is one of the most successful investors in Wall Street’s history, having accumulated a fortune of $138 billion. His total assets might have been significantly higher if he hadn’t donated large sums to different charitable causes.
Market participants have always applauded his disciplined approach, which entails a long-term perspective. His investment firm has become the latest company to cross the $1 trillion mark on market cap, underlining Buffett’s impressive stock-picking skills. According to Cathy Seifert, Berkshire analyst at CFRA Research, the $1 trillion milestone is a testament to Buffet’s investment firm’s financial strength and franchise value.
Buffett’s investment strategy has remained constant throughout his career, focusing on the concept of value investing. The strategy focuses on identifying companies that are undervalued but have the potential to increase in value over time. Buffett seeks out companies with a lasting edge over competitors, like a well-established brand, high barriers to entry, and a large and loyal customer base, and he buys into them at a price that ensures a safety margin.
Likewise, the billionaire investor is well-known for his cautious stance on investing in high-risk, high-reward sectors like technology. Instead, he prefers to invest in more stable sectors such as retail, insurance, and finance. He is recognized for his commitment to long-term investments, holding onto companies for extended periods, and steering clear of frequent trading. This strategy enables him to benefit from the compound interest effect and allows the companies he invests in to mature and produce significant profits.
Buffett’s cautious approach is evidenced by the fact that his investment firm had over $180 billion in cash as of the end of the first quarter. The cash reserves were expected to swell to over $270 billion as of the end of June.
The cash reserves have been building up as the billionaire investor only invests in finding attractive deals with eye-popping returns. In a 2023 letter to shareholders, Buffett reiterated he did not see the possibility of eye-popping performance.
Buffett has consistently included dividend stocks in his portfolio, which is a strategy that has effectively generated consistent passive income. This year alone, his investments are projected to generate around $6 billion in dividend earnings.
Nevertheless, Buffett has also been in defensive mode in recent months, opting to reduce stakes in some companies. He has trimmed holdings by up to half in some tech giants, concerned by valuations getting out of hand after a year of gains fuelled by the artificial intelligence frenzy.
While valuations have gotten out of hand going by the blockbuster gains over the past year, there are still opportunities to unlock. With the US Federal Reserve poised to end its monetary easing spree with a cut of interest rates, equity is poised to receive a significant boost.
The best long-term stocks to buy, according to Warren Buffett, are companies well poised to benefit from interest rates dropping. Low interest rates make it easier for companies to access cheap capital to accelerate their operations, generating more shareholder value.
Our Methodology
To compile our selection of the best long-term stocks to buy according to Warren Buffett, we began by analyzing Berkshire Hathaway’s 13F portfolio and chose to highlight the stock holdings that have remained within the portfolio for at least 5 years. Next, we assessed the number of hedge fund investors associated with each stock, as of the end of the second quarter of this year. Finally, the stocks were ranked in ascending order based on the value of Warren Buffett stakes in the companies.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A row of factory workers assembling bottles of sparkling soft drinks on a conveyor belt.
The Coca-Cola Company (NYSE:KO)
Warren Buffett’s First Major Purchase: 2010
Berkshire Hathaway’s Latest Investment Stake: $25.46 Billion
Number of Hedge Funds Holding Stakes as of Q2: 68
The Coca-Cola Company (NYSE:KO) is one of Buffett’s most extended holdings, and Buffet has always diversified his portfolio into the beverage sector as a consumer defensive investment play. The company is best known for the manufacturing, marketing, and selling of various nonalcoholic beverages worldwide.
The Coca-Cola Company (NYSE:KO) is one of the best long-term stocks to buy, according to Warren Buffett, owing to its powerful brands that allow it to navigate any economic cycle while generating significant returns. While it is best known for Coke, it also owns brands like Powerade, sports drinks, Minute Maid juices, Costa coffee, Gold Peak tea, Dasani water, and Bar’s root beer.
The company does not bottle or distribute all its beverages. Instead, it outsourced to third-party bottlers. The model leads to much less revenue for Coca-Cola but translates into more reliable profits and wider profit margins.
In the second quarter, the beverage juggernaut recorded $12.3 billion in revenues, marking a 3% increase compared to the previous year. The firm is recognized for its steady growth, expanding its net sales from $33 billion in 2020 to $46 billion by 2023. The Coca-Cola Company (NYSE:KO) has experienced a compound annual growth rate (CAGR) of 6% in revenue and 7% in free cash flow in the last five years.
The Coca-Cola Company (NYSE:KO) has been increasing its dividends for over 60 years, making it a prestigious Dividend Kings group member. Companies must have a strong track record of managing their finances to maintain membership in this group. They need to continuously increase their earnings per share (EPS) and free cash flow (FCF) even during economic downturns to be able to afford their growing dividend payments.
The beverage giant meets this threshold, therefore underlining why it is one of the best long-term stocks to buy, according to Warren Buffett. Currently, it pays a decent forward dividend yield of 2.72%
Along with Buffett, 68 hedge funds out of the 912 that were part of Insider Monkey’s database had bought the firm’s shares in Q2 2024. Berkshire Hathaway remained the biggest investor, holding $25.46 billion worth of shares.
Overall KO ranks 4th on our list of the best undervalued cyclical stocks to buy. While we acknowledge the potential of KO as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than KO, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.