Legendary investor Warren Buffett has reduced
his Berkshire Hathaway (
) holdings in many consumer stocks, but not in Coke. (
Buffett is big on emerging market growth - as demonstrated by his
buying the Santa Fe Burlington Northern Railroad, which
transports coal to West Coast ports for shipment to emerging
market countries, and his recent visit to India. But he has
lightened up on consumer stocks such as
Kraft Foods (
This was because Buffett feels that consumers will turn to
generic brand names rather than those like Oreo, which is a Kraft
product. But Buffett has maintained his substantial, long term
position in Coca-Cola, for good reason. With a profit margin of
18.49% and dividend yield of 2.60%, Coke has been very rewarding
in its total return for investors.
Much of this
emanates from emerging market consumers
. At present, Coca-Cola products are bought and sold in every
country in the world, except for two: North Korea and Cuba. After
an absence of sixty years, Coke just began operations
in Myanmar (formerly Burma) again.
As the emerging market consumer class is expected to reach $30
trillion in spending by 2025, according to a recent report by
global consulting firm McKinsey & Co., Coke is
well-positioned to profit from that expanding affluence. Even
during the Great Recession, the middle class in emerging market
nations continued to grow. By 2025 consumer spending from it will
be about the current total for the world.
While there are certainly competitors to Coke, none have come
close to toppling the king of consumer beverages. Warren Buffett
exclaimed, "If you gave me $100 billion and said, 'Take away the
soft-drink leadership of Coca-Cola in the world,' I'd give it
back to you and say it can't be done."
Over the last year, KO shares have risen more than 20%. Even
with this advance, the short float is tiny. Now trading about
$38.80, Coke's stock has a mean analyst target price for over the
next year of market action of $41,63.