Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Why Buffett Likes The Coca-Cola Company (KO)… and Not Just the Drink

Now, Coke owns and operates over 90% of its North American business enterprise and can respond to consumer demand more rapidly.

Cash and dividends, another Buffett staple

With a beta of only 0.34, Coke’s risk is comparable to its rivals. The firms are not incredibly risky during market fluctuations. With operating cash flow of $10.63 billion as of April 30, Coke further distinguishes itself because it has the ability to adjust to unforeseen market conditions. The soft drink giant also offers a dividend similar to Pepsi and Dr. Pepper Snapple Group.

Surging forward, a Buffett favorite

Perhaps Coke’s most impressive characteristic, though, is the established company’s ability to grow.

Coke has not missed an earnings forecast for more than two years, and it exceeded analyst forecasts for the first quarter. While US sales are stagnant due to flat growth, Coke is seeing rising sales in emerging markets and volume growth in growing regions like India, Russia, and Brazil. Chairman and CEO Muhtar Kent is, “pleased with our first quarter performance results, having once again delivered solid growth against the backdrop of a still uncertain global economy.” Coke shows no signs of slowing down, even in a volatile market.

Dr. Pepper Snapple Group, however, only operates in the Americas. And as of the first quarter, only 3.6% of its operating profits came outside of Canada and the U.S. If the North American market stagnates or sinks, its investors will not be pleased with the results.

Even though Pepsi is investing in growth and emerging markets, Pepsi cannot compete on the same level as Coke because its product offering is two-tiered. Snacks comprise about 51% of Pepsi’s revenues, while beverages comprise about 49% of revenues. In addition to Coke’s superior economies of scale and distribution system, Pepsi’s snack division is a major reason why Coke’s margins are exceedingly higher. The sight surely pleases Buffett.

Buffett’s recommendation

Above are only a few reasons why Coke is a Buffett favorite. It is an efficiently managed, mature firm that continues to generate investor value through dividend payments and market growth. Additionally, Coke’s margins are untouchable by its competitors, and it is an entrenched giant in a global industry. With large stake in Coke, Berkshire Hathaway Inc. (NYSE:BRK.A) and Buffett will continue to reap benefits. In my opinion, Coke is in business for the long haul.

Brendan Marasco has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo.
Brendan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Why Buffett Likes Coke … and Not Just the Drink originally appeared on is written by Brendan Marasco.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.