Should You Be Buying Coca-Cola with Warren Buffett?

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Warren Buffett’s Berkshire Hathaway’s largest 13F holding by market value at the end of September- as it has been for some time- was The Coca-Cola Company (NYSE:KO) with the holding company owning 400 million shares of the global beverage brand. That stake was worth over $15 billion at the time (see more of Buffett’s favorite stocks). Coca-Cola is often given as a classic example of Buffett’s “moat” value-add to the value investing tradition: find a company which isn’t only priced attractively, but also has a sustainable competitive advantage that will prevent other companies from breaking into its market. Coke’s brand- and, more importantly, its trade secret formula- provide that moat.

Warren Buffett portrait

Berkshire, as might be expected, had the largest position in The Coca-Cola Company out of the investors that we track in our database of 13F filings; however, we recorded some other large holders of the stock as well. The Bill & Melinda Gates Foundation Trust owned over 23 million shares, making Coca-Cola one of its top three stock picks behind McDonalds and Berkshire Hathaway itself. Find more stocks the trust is invested in. Billionaire Ken Fisher’s Fisher Asset Management and Boykin Curry’s Eagle Capital Management also had over $350 million invested in the stock. Check out more stock picks from Ken Fisher and from Eagle Capital Management.

Coca-Cola’s revenue was about flat in the third quarter of 2012 compared to the same period in the previous year. Higher revenue in North America was partially offset by weaker performance in Europe and a slight decline in the Pacific geography. Margins were up slightly, but not by much and so net income showed a light increase as well. Overall in the first nine months of the year earnings per share came in at $1.56 as opposed to $1.49 a year earlier.

With these recent results and a market cap of $166 billion, The Coca-Cola Company trades at 19 times trailing earnings. It’s certainly the case that the company still has its moat and its brand name, but even with those advantages it doesn’t stand out as a cheap stock at that pricing. Analyst expectations are for slight growth in 2013, and these figures imply a P/E of 17. Coca-Cola is also notable as a common example of a defensive, consumer staple stock, and its beta is a fairly low 0.4.

How does Coca-Cola compare to its peers?

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