We recently compiled a list titled Buffett Stock Portfolio: Top 10 Stock Picks for 2024. In this article, we will look at where The Coca-Cola Company (NYSE:KO) ranks among the top 10 stocks in Buffet’s portfolio.
Warren Buffet is one of the most accomplished investors in the history of Wall Street. According to Bloomberg’s Billionaire Index 2024, the Oracle of Omaha has a net worth of $143 billion, making him the ninth richest person in the world. His wealth would have been much more had he not decided to donate most of his vast fortune to charities. Since 2006, Buffet has donated over $55 billion to various charitable organizations, with a majority of the gifts going to the Bill & Melinda Gates Foundation.
Buffet rose to prominence in 1965, after transitioning his investment firm into a conglomerate that held stakes in companies belonging to a broad range of industries. Between then and 2023, his firm earned average annual returns of 19.8%, outperforming most stock indices that delivered returns around the 10 percent mark during this period. However, this year, Buffet seems to be in a defensive mode and is currently in the news for his sell-off spree, significantly reducing his investments in several notable companies.
There have been mixed opinions about Buffet hunkering down on stocks. Edward Jones analyst, Jim Shanahan, said that the actions make him ‘concerned’ about Buffet’s outlook for the stock market and the American economy. In contrast, Daniel Ives, a Wedbush analyst, is less worried and believes that despite the selling spree, Berkshire still holds the top positions in those stocks by large margins, which should not be viewed as a ‘smoke signal for bad news ahead’.
So what will Warren Buffet do with all that cash? Andrew Bary, the associate editor at Barron’s, recently stated that the billionaire has been on the look for a major acquisition for some while now, which has so far proven elusive. He believes the Berkshire CEO may just hold the cash for some while, earn interest on Treasury Bills, and wait for potential opportunities to grab in the stock market.
Another factor that has likely contributed to Warren Buffet dumping stake in some of his top stocks is the speculation around the increase in capital gains tax. The debate on the tax rate has been on for some time now and has even become a talking point in the run-up to the presidential elections. Vice President, Kamala Harris, during a speech in New Hampshire this month, proposed to raise the long-term capital gains tax for wealthy individuals to 28%.
The current tax rate is 21% when a gain is realized. Massive gains over the long term result in a large tax. Warren Buffet invested in stocks he is currently selling a long time ago, and hence, is sitting on handsome gains. The rationale behind selling these stocks could be to capitalize on the gains as much as possible on the current low tax rate, instead of paying hefty taxes later if the rate were to be increased.
Methodology
We scanned Warren Buffet’s portfolio, as of June 30, 2024, and picked the top 10 stocks according to their stake value. The figures were sourced from the Insider Monkey Database.
Why are we interested in 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).
The Coca-Cola Company (NYSE:KO)
Stake Value as of Q2 2024: $25,460,000,000
The Coca-Cola Company (NYSE:KO) is an American multinational company that manufactures and sells soft drinks, alcoholic and non-alcoholic drinks, beverage concentrates, and syrups. It is one of the most renowned companies in the world, with its products sold in more than 200 countries and territories. According to a report, ‘Coca-Cola’ is the second most understood word in the world after ‘okay’.
The company has been caught in the crossfire of the ongoing conflict in the Middle East, with its logo being part of numerous others being circulated on social media as part of a boycott campaign against Western products. In November last year, Turkiye’s parliament voted to remove Coca-Cola from restaurants and shops in the country. On the other hand, the boycott of Coke in several Asian markets has led to a resurgence of local cola brands to compete against it. The company also faces headwinds amid rising global inflation rates and foreign exchange turbulence.
However, The Coca-Cola Company (NYSE:KO)’s overall financial position remains strong. In Q2 2024, the company reported a revenue of $12.4 billion, up 3% from last year. Operating margin was 21.3%, compared to 20.1% in the same quarter in 2023. Earnings per share totaled $0.84, beating analysts’ estimates of $0.81. The improved results were driven by continued price increases, which were hiked by 13% in Q1 and then 9% in Q2 due to high inflation in some markets.
The company also experienced growth across the ASEAN and South Pacific region, fueled by its sparkling portfolio. The business has also shown signs of recovery in India after a sedate start to the year, driven by a surge in sales of Fanta and Sprite, and strong performances by local products such as Mazaa and Thumbs Up.
The Coca-Cola Company saw pressure in Europe, due to a decrease in foot traffic and harsh weather in different parts of the continent. To capture value, the company is investing in sponsorship of various highly anticipated events such as music concerts and sports events. It was one of the sponsors of the Paris Olympics and Euro 2024 Football Championship. It is also focusing on brands such as Fuze Tea and Powerade, which have momentum in Europe, to drive sales.
Despite some headwinds, the company’s outlook looks promising. It has also raised its guidance for 2024, and now anticipates an organic revenue growth of 9-10%. EPS is also expected to rise 13-15% for the full year. Wall Street analysts have consensus on the stock’s Buy rating and forecast a 2-3% appreciation in its share price. The number of hedge funds having investments in Coca-Cola has also increased from 62 in Q1 to 68 in Q2, according to Insider Monkey.
The Coca-Cola Company (NYSE:KO) is among the top picks from the Buffet stock portfolio, with the hedge fund having investments of over $25.4 billion in the company.
Overall, KO ranks 4th among the Buffett Stock Portfolio: Top 10 Stock Picks for 2024. 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 but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published on Insider Monkey.