coca cola (NYSE: KO) Stock investing isn’t the largest position in Warren Buffett’s portfolio, but it is one of the billionaire’s favorites — and it’s likely to remain there at current levels.
Buffett began buying shares of the world’s largest soft drink maker in 1987 and continued adding to the position for seven years. His 400 million shares have not budged since. He even described his attachment to Coca-Cola as “Rip Van Winkle’s sleep.”
Buffett, who is known to drink several cans of Coca-Cola a day, clearly loves the product, and he loves the fact that others feel the same way. The strength of the company’s brand provides a moat, or competitive advantage, which is a key element that Buffett looks for in a company. Moreover, the beverage giant has been successful in increasing its profits over time and rewarding investors with dividends.
For these reasons, Coca-Cola is likely to remain in its position in Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) But this stock may not be the only one that will enjoy Buffett’s undying loyalty. In fact, the stock he recently reduced his stake in may join Coca-Cola as one of Berkshire Hathaway’s “permanent” holdings. I expect it to be the next Coca-Cola stock that Buffett will hold.
Buffett recently sold some shares of this stock.
So, which stock am I talking about? Well, it’s another well-known company, albeit one in the technology sector rather than the beverage sector: apple (NASDAQ:AAPL).
But wait a minute, you might say, Buffett. Sold Some of his shares At the iPhone maker in the second quarter. Isn’t that a bad sign?
Not necessarily. At Berkshire Hathaway’s annual meeting in May, Buffett noted that his Apple sales were tied to the company’s current 21% capital gains tax rate, not a loss of confidence in the company. He expects the tax rate to rise, given the current size of the federal deficit. Even factoring in the sale of his 49% stake in Apple, Buffett said it was “very likely” that it would become Berkshire’s largest share of common stock by the end of the year.
Apple’s recent sale reduces its stake to 400 million shares. Sound familiar? That’s the same number of shares Berkshire Hathaway owns in Coca-Cola. It’s an interesting detail, of course, but I’m not basing my predictions on it. I have a stronger case for why Buffett might see Apple as the next Coca-Cola.
“Brilliant CEO”
This is due to his confidence in the company’s management and its strong earnings record. In his 2021 shareholder letter, Buffett referred to Tim Cook as Apple’s “brilliant CEO” and praised his decision to buy back Apple shares. Share buybacks increase the ownership of existing shareholders without them paying a dime.
These buybacks helped Berkshire Hathaway increase its stake in Apple from 5.2% in 2018, when it completed the share purchases, to 5.4% by 2020. Berkshire Hathaway began buying Apple shares in 2016.
Cook’s expertise has also helped Apple achieve double-digit profit growth over the past five years. Like Coca-Cola, Apple has achieved double-digit profit growth over the past five years. big trenchWith iPhone users flocking to the company every time a new model is released, last year, for the first time ever, Apple claimed the top seven spots on the list of best-selling smartphones compiled by Counterpoint, a technology market research firm.
“permanent trench”
In his 2007 letter to shareholders, Buffett wrote, “Any truly great company must have a permanent moat that protects excellent returns on invested capital,” emphasizing the importance of this when choosing investments.
Finally, there’s one more thing about Apple that could help it become the “second Coca-Cola” in Berkshire Hathaway’s portfolio: the company’s commitment to dividends. Berkshire Hathaway has averaged about $775 million in annual dividends since 2018.
Tech companies aren’t known for paying huge dividends because they invest so much in growth, so Apple’s dividend isn’t the biggest by far. But the company has paid a consistent dividend since 2012. At $1 per share per year and with a dividend yield of 0.4%, it’s an attractive part of the overall package.
All of this leads me to predict that Apple, like Coca-Cola, will be a permanent fixture in Berkshire Hathaway’s portfolio. With its strong earnings record, strong moat, and generous dividend policy, this tech stock is a great addition to any portfolio that needs a great mix of growth and security.
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Adria Cimino The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has Disclosure Policy.
Prediction: This Stock Will Become Warren Buffett’s Next Coca-Cola Stock Originally posted by The Motley Fool