I reckon this is one of Warren Buffett’s best buys ever

Legendary investor Warren Buffett has made some exceptional investments over the years. This Fool thinks this one could be up there.

| More on:
Fans of Warren Buffett taking his photo

Image source: The Motley Fool

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Over the years, Warren Buffett has earned his name as one of the best stock pickers ever. But what has been his best investment?

His firm, Berkshire Hathaway, has a portfolio consisting of over 45 businesses, ranging from renowned car manufacturers to packaged foods companies.

I’ve been scouring his portfolio and I think I’ve cracked it.

My choice

In my opinion, it’s Coca-Cola (NYSE: KO). Buffett first invested in the stock back in 1988. Today, he owns 400m shares worth over $24.7bn.

There are a few reasons it stands out to me. Firstly, it highlights perfectly Buffett’s goal to buy companies with moats that can give it a competitive advantage over many years. Coca-Cola is an iconic brand with huge demand. Every day, more than 1.9bn servings are consumed in over 200 countries.

There’s also the income he receives from the investment. Today, Coca-Cola has a 3.1% dividend yield. However, for Buffett, that works out more like 60%.

That’s because he’s set to receive $776m in dividends this year from stock, representing a 59.7% yield on his original $1.3bn investment.

Finally, with it being Berkshire’s longest continuous holding, it also highlights the power of investing with a long-term outlook. Building wealth doesn’t happen overnight. It’s a process that can take decades.

Time to buy?

But just because Buffett has enjoyed vast success with his investment in the stock, does it still make it a company that investors should consider buying today?

I reckon so. As I highlighted earlier, Coca-Cola is a strong brand. And that gives it an edge. For example, look at last year. During a period where inflation wreaked havoc and saw many consumer brands struggle, Coca-Cola managed to grow its revenue by 6% to $45.8bn.

What’s even more impressive about that is the fact it managed to grow revenues largely by upping prices. Total volume of beverages sold only increased by 2%. That highlights the ongoing demand for its products.

There’s also the passive income angle. Not many investors will be dealing with the figures that Buffett plays about with, but there’s still the opportunity to make some extra cash.

Today, £20,000 invested in the stock, assuming its 3.1% yield and that I reinvested my dividends, would leave me with an investment pot of £50,781 after 30 years. That’s not bad.

Granted, there are higher yields out there that could generate more cash over the same period. But Coca-Cola has increased its payout for 62 consecutive years. That’s an astonishing track record.

The risks

That being said, there are a few risks with the investment.

The biggest I see is consumer trends shifting to healthier products. It’s no secret that Coca-Cola products aren’t the healthiest. As society and governments across the globe become more health-conscious, this will have an impact on the business.

The stock also looks on the pricy side, trading on a price-to-earnings ratio of 24.9 and above the S&P 500 average of 23.

Paying the price

But Buffett himself has advocated before that: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

He just targets quality. And with Coca-Cola, I think it offers exactly that.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Photo of a man going through financial problems
Investing Articles

Down 15% in a week! What’s gone wrong with the National Grid share price?

The National Grid share price isn't supposed to crash but now it has. Harvey Jones is wondering whether to take…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

Taylor Wimpey just paid me £158.78. I’m aiming to turn that into a £100k yearly second income

Harvey Jones says small, regular dividend payments can turn a few pounds into a mighty second income, if he gives…

Read more »

A pastel colored growing graph with rising rocket.
Value Shares

These FTSE 250 shares are tipped to rise 14% to 18% in the next year!

Looking for the best FTSE 250 momentum shares to buy? Here are two that City analysts expect to soar in…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Lloyds’ share price is up 20% in 3 months! How high can it go?

Lloyds’ share price has ripped higher recently. Here, Edward Sheldon provides his view on the level it could potentially climb…

Read more »

Investing Articles

Why the Rolls-Royce share price could continue to outperform

The Rolls-Royce share price keeps moving forward, but this Fool thinks it's still behind where it ought to be after…

Read more »

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

The City expects explosive growth in earnings from this almost-penny stock

It’s rare to find earnings predictions as robust as those for this not-quite-a-penny stock, so I’d research and consider it…

Read more »

Investing Articles

As earnings rise 600%, is Nvidia still the best AI stock to buy?

With the supply and demand equation still looking strong for Nvidia, is the stock still the best AI opportunity for…

Read more »

Value Shares

Cheap UK stocks are soaring! Here’s 1 to consider buying now

In recent weeks, many UK stocks have surged. Here, Edward Sheldon highlights a blue-chip FTSE 100 share he believes could…

Read more »