Warren Buffett is one of the most successful investors of all time, and his investment decisions are closely watched by many people in the financial world. He has a proven track record of making profitable investments and building wealth over the long term.
For example, if you invested $10,000 in Berkshire Hathaway stock 40 years ago, your Berkshire position would be worth $6 million today. That’s a compound average growth rate (CAGR) of 17.3% across the peaks and valleys of four decades. That soaring return is a direct result of Buffett’s genius approach to large-scale investments.
Of course, it’s important to keep in mind that everyone’s investment goals and strategies are different, and what works for Warren Buffett may not necessarily work for you. However, Buffett’s reputation for gold-standard market research with a focus on long-term returns gives the rest of us a robust starting point for further consideration. That’s why you could start the search for your next long-term investment on Buffett’s list of durable winners.
On that note, I would suggest following Buffett’s lead to pick up some shares of Coca-Cola (KO) and Amazon.com (AMZN 1.46%) for the long haul.
Berkshire Hathaway invested $963 million in Amazon stock in 2019. The purchase was managed by Buffett’s top-notch team of investment managers, though Buffett said that he had admired Amazon for years and berated himself for not taking action sooner.
This investment has gained a modest 10% in three years across the boom-and-bust cycles of the COVID-19 crisis. Buffett is holding on to the stock in the inflation-based downturn, looking for strong returns in the years and decades ahead.
I can’t blame the value-investing guru for staying on Amazon’s sidelines for so long. The stock never looks cheap in light of traditional valuation ratios, and applying a growth-based model to the stock goes against Buffett’s deep-rooted training. That being said, Amazon shares are changing hands for just two times trailing sales right now. It’s finally possible to make a value-oriented investment case for Amazon.
At the same time, the e-commerce and cloud-computing giant’s torrential revenue growth continues. The top-line gains have slowed down in recent quarters, but that downtrend is balanced by soaring jumps in the era of coronavirus lockdowns. All in all, you can smooth out the COVID-19 bump on this graph and arrive at a five-year CAGR of 24%:
You’re getting a business giant with more than half a trillion dollars in trailing revenue, growing at a pace that makes many hungry little upstarts jealous. If anything, I’m mildly surprised that Buffett isn’t doubling down on Berkshire’s Amazon investment while the stock is this affordable.
Buffett’s lack of recent Amazon investments shouldn’t stop you from taking advantage of this fantastic buying opportunity. This stock is a cornerstone of my personal portfolio, with decades of market-beating growth left in the tank.
Buffett’s history with Coca-Cola’s stock goes all the way back to 1988. Berkshire sunk roughly $1 billion into Coke shares when Milli Vanilli and Paula Abdul ruled the radio and has largely left that investment alone ever since. The Coca-Cola investment is now worth $25.4 billion.
Coke also pays generous dividends, currently yielding 3%. Berkshire isn’t reinvesting the dividends directly into more Coca-Cola stock, choosing to add that cash to its general investment reserves, instead. That adds up to more than $18 billion in dividend payouts over 33 years.
Altogether, Berkshire’s $1 billion is now worth more than $43 billion. In short, the sugary beverage giant has been a stellar long-term investment.
You might think it silly to buy shares of a soft-drink company in this era of health-conscious consumers. That’s a fair point, but it doesn’t tell the whole story.
The health trend started many years ago. Coca-Cola’s financial damage from that trend should be in the rearview mirror by now. Flagship brands like Coke, Sprite, and Fanta continue to sell in the reshaped market. In fact, Sprite’s dominant position in the lemon/lime-flavored segment recently forced arch-rival PepsiCo (PEP 0.14%) to discontinue its 24-year-old Sierra Mist brand and introduce a new product named Starry.
Furthermore, Coca-Cola manages a diverse mix of beverage brands. Sparkling soft drinks can appeal to the health-minded consumer, with several low-calorie options such as Diet Coke and Coca-Cola Zero Sugar. Together, the soft-drink category saw 4% year-over-year sales growth in the recently reported fourth quarter of 2022.
And don’t forget about names like Dasani, Topo Chico, Smartwater, and Powerade. In the fourth quarter, Coke saw 6% higher sales of water, sports drinks, coffee, and tea.
The soft-drink specialist of old has diversified its way into every nook and cranny of the overall beverage market, and I expect it to continue evolving along with the ever-changing market. If you’re looking for a safe-as-houses dividend machine that passes all of Warren Buffett’s business quality tests, Coca-Cola should be at the top of your list.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anders Bylund has positions in Amazon.com. The Motley Fool has positions in and recommends Amazon.com and Berkshire Hathaway. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.