Warren Buffett is known for his investment strategy of buying shares in exceptional companies at fair prices and holding them for the long term. Two stocks in Berkshire Hathaway’s portfolio that fit this criteria are Coca-Cola and Berkshire Hathaway itself. Coca-Cola remains a top brand in the growing beverage industry.
The company was able to raise prices last year to offset inflationary costs, demonstrating the strength of its consumer brands. With a growing middle class in China and India, Coca-Cola has great long-term prospects. Management believes it can grow adjusted revenue by close to 6% annually, and with the use of AI to manage costs and pricing, earnings could grow 8-10% per year.
This, combined with a 3% dividend yield, could translate to annualized returns of around 10% over the next decade. Berkshire Hathaway, Buffett’s largest personal holding, is a collection of outstanding companies that generated $452 billion in trailing revenue. These businesses span insurance, railroad, energy, retail, and more, and each possesses a durable competitive advantage.
Greg Abel, who oversees Berkshire’s non-insurance operations, will take over as CEO when Buffett is gone and continue to manage capital in a way that grows the value of the business. Berkshire is sitting on $320 billion of cash and short-term securities, with another $271 billion in stocks as of the third quarter. Its operating businesses, including GEICO and BNSF railroad, are also run by skilled business people.
Coca-Cola and Berkshire Hathaway will almost certainly be around for decades to come, growing in value for shareholders.
Buffett’s favored long-term investments
Buffett’s portfolio is heavily focused on dividend stocks, which account for over 90% of Berkshire’s holdings.
Dividend stocks have played a crucial role in overall market returns, with dividends accounting for 75% of the broader market’s returns from 1980 to 2019. Buffett favors steady, reliable businesses with moderate yields over riskier stocks with higher payouts. Some of the best dividend stocks in Buffett’s portfolio as of Q3 2024 include The Kraft Heinz Company, The Kroger Co., and Chubb Limited.
Kraft Heinz has been making steady progress in strengthening its financial position and offers a dividend yield of 5.52%. Kroger reported strong sales driven by its pharmacy and digital segments and has a dividend yield of 1.96%. Chubb offers a wide range of insurance products and reported net premiums growth of 4% in Q4 2024.
Other stocks in Buffett’s portfolio that are smart buys now include Visa, VeriSign, and DaVita. Visa is a leading payment technology company that recently acquired an AI-driven payments protection firm to strengthen its fraud prevention capabilities. VeriSign provides domain name registry services and internet infrastructure, and Buffett holds a 14% stake in the company.
DaVita provides kidney dialysis services and has robust fundamentals and a positive market outlook. Overall, Buffett’s investment strategy of acquiring quality businesses with durable competitive advantages and strong growth prospects has stood the test of time. Investors looking to follow his approach may want to consider the stocks mentioned above for their own portfolios.
