Buffett Loves International Business Machines Corp. (IBM), The Coca-Cola Company (KO), and The Procter & Gamble Company (PG)

Page 1 of 2

Instead of wondering who will become the next CEO of Berkshire Hathaway Inc. (NYSE:BRK.A) or what Warren Buffett wrote in his first tweet I think most investors, including me, would be more interested in the answers to questions like what companies he chooses and how he chooses them.

Q&A

The annual Berkshire shareholders meeting was held earlier this month, a “small” affair attended by 35,000 of the faithful in Omaha, Nebraska.

In addition to providing various financial information, it featured a five hour long question and answer period where Warren Buffett and Vice-Chairman Charlie Munger tried to impart their collective investing wisdom onto the masses.

Working together for nearly a half century, Buffett and Munger have identified companies ripe to be acquired at reasonable prices and brought into the Berkshire Hathaway Inc. (NYSE:BRK.A) stable, as well as individual stocks that have returned tons of value to shareholders.

The result has been fantastic. Over the last 13 years there has been a three-fold increase in Berkshire’s stock price while the overall market has been relatively flat.

Some of the companies Berkshire owns outright include GEICO, NetJets, Benjamin Moore, Burlington Northern Santa Fe, and Fruit of the Loom.

Warren Buffett always said that the minimum holding period for a stock should be “forever.” He looks for companies that do not trade much above their book value and keeps them as long as they keep delivering value.

Three stocks that made the grade, and remain part of Buffett’s widely diversified portfolio today, are The Coca-Cola Company (NYSE:KO), International Business Machines Corp. (NYSE:IBM) and The Procter & Gamble Company (NYSE:PG).

This Coke is for you

Coca-Cola Company (NYSE:KO)The Coca-Cola Company (NYSE:KO) stock was first purchased by Mr. Buffett in 1988, and factoring in reinvested dividends it has gained more than 1,000% since.  That’s almost double the overall market, although only half of the gain of Berkshire.
Part of the company’s success derives in part from great product recognition and a very wide economic moat. Who hasn’t heard of Coke? It is the world’s best-known and valuable brand, and is consumed in the vast majority of countries today.

Add in a great management team, lots of cash flow and a relatively inexpensive valuation compared to its peers and you get solid performance. You can’t go wrong owning Coke.

Speaking of dividends, The Coca-Cola Company (NYSE:KO) has been ratcheting them up every year for about half a century. Over the past 35 years each shareholder has collected a total of $29,300 for every $1,000 initially invested. Based upon its earning power and cash flow the company should be able to keep increasing them in the future.

Inventive technology

When talking about International Business Machines Corp. (NYSE:IBM), Mr. Buffett says he doesn’t care if the share price actually goes up. He is content reaping rewards from the company stock buyback efforts. If the price remains where it is or lower the company spends less money when repurchasing shares on the open market. That means more money for investors like Mr. Buffett.

Since 2000, International Business Machines Corp. (NYSE:IBM) has lowered its share count by a third, in the face of sluggish revenue growth. The remaining shares are now worth more and EPS has increased as the result.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!