Should You Buy This Top Warren Buffett Stock With $100 Right Now?
Because of his remarkable track record spearheading Berkshire Hathaway to becoming the eighth most valuable enterprise on the face of the planet, average investors love to follow what the great Warren Buffett is doing with his portfolio.
Look through the Oracle of Omaha's holdings, and you'll see Coca-Cola (NYSE: KO) toward the top of the list. This beverage stock makes up 9.3% of Berkshire's $371 billion public equities portfolio.
Should you copy Buffett and buy Coca-Cola shares with $100 right now?
So many favorable qualities
Investors should understand that Warren Buffett likes to own what he believes are outstanding businesses. There are many factors that support the argument that Coca-Cola is an above-average company.
For starters, the business possesses a wide economic moat that stems from its powerful brand recognition. Coca-Cola has been around since 1886, and today, it's available in more than 200 countries and regions. Consequently, people have built habits and loyalty around their favorite beverages, an affinity driven by the company's consistency over the decades.
I'm sure Buffett appreciates Coca-Cola's proven pricing power. Just in the latest quarter (fourth-quarter 2023 ended Dec. 31), the business was able to register a 7% sales gain that was driven by favorable pricing trends. This is a telltale sign of the company's quality.
Coca-Cola can be considered a consumer staple. This means the demand for its beverage products is durable, not overly sensitive to the whims of the broader economy. This reduces risk for investors and adds some stability and predictability to the business model. Even in a recessionary scenario, Coca-Cola's sales and profits should hold up well.
All of these attractive traits probably caught Buffett's attention. They provide peace of mind for shareholders.
Thinking about growth
There's no denying that Coca-Cola is a very mature company these days. I mentioned its wide reach earlier. The company's beverages have been available virtually everywhere for a long time, which feeds its broad distribution and scale advantage.
The issue, however, is that growth might be very limited. I believe that it's safe to assume that Coca-Cola won't post revenue gains that are much faster than global gross domestic product (GDP) growth. In fact, it might simply match this metric.
Indeed, Wall Street consensus analyst forecasts agree with this perspective, as estimates call for Coca-Cola's sales to rise at an annualized pace of 3.4% during the next three years. Usually, it's best to take these outlooks with a grain of salt, but in this instance, the projection might hold some weight, as this is a very predictable business. That top-line forecast doesn't give shareholders much to get excited about.
Thirsty for market-beating returns
Weak growth prospects are one reason Coca-Cola might not be a smart investment to make right now. The other reason has to do with the stock's current valuation.
As of this writing, the shares trade at a price-to-earnings ratio of about 24. That's below the trailing five-year average, but I believe it still makes the stock overvalued. Since April 2019, the shares have produced a total return of just 49%. This includes Coca-Cola's healthy 3.25% dividend yield.
The S&P 500, on the other hand, would have nearly doubled your capital during the same time. I don't think there's any reason to believe that this track record of underperformance is going to change anytime soon. If the valuation dropped significantly, then maybe the stock deserves a closer look.
But I believe the takeaway for investors is straightforward: If your goal is to beat the S&P 500 over the long term, then it's a good idea not to buy Coca-Cola today with $100.
Should you invest $1,000 in Coca-Cola right now?
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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
Should You Buy This Top Warren Buffett Stock With $100 Right Now? was originally published by The Motley Fool
