Warren Buffett once said his favorite holding period is “forever,” and he was probably talking about Coca-Cola (NYSE:KO) when he said it. Nearly four decades later, Coca-Cola is still one of Berkshire Hathaway’s longest-held stock, and new CEO Greg Abel kept it even while trimming other positions from the portfolio. That kind of loyalty usually means a stock has earned it, and Coca-Cola’s second quarter gave shareholders fresh reasons to agree.
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Numbers That Back Up The Loyalty
The quarter itself was clean. Revenue rose to $13.4 billion from $12.6 billion a year earlier, and adjusted earnings of $0.97 per share topped estimates of $0.93, with volume up 5%. Management didn’t just beat the quarter, it raised the bar for the rest of the year, lifting expected earnings growth from 8% to 9% up to 9% to 10%, while revenue growth now points toward the top of its 4% to 5% range. Some of the boost came from clever timing, as World Cup hydration breaks doubled as ad slots that pushed Powerade volume up 8% and core Coca-Cola volume up 5%.
What makes the growth durable is the structure underneath it. Coca-Cola outsources its bottling, trucking, and distribution, keeping the business asset-light in a way Pepsi doesn’t, and it sticks to beverages rather than carrying food brands exposed to rising input costs. That’s a meaningful reason Coca-Cola has outperformed Pepsi in nearly every stretch since 1990, and it’s the same logic that’s kept Berkshire collecting over $800 million a year in dividends from a stake it built decades ago.
The Bill That Comes With Consistency, Coke vs Pepsi
Consistency like that isn’t free. Coca-Cola trades at a steep premium to PepsiCo’s (NASDAQ:PEP), and its 2.45% dividend yield lags PepsiCo’s 4.26% by a wide margin, an easy argument for anyone prioritizing income. There’s a quieter wrinkle too. Despite calling Coca-Cola a forever stock, Berkshire hasn’t bought a single additional share since 1994. Holding isn’t the same as adding, and even the company’s most famous long-term believer has been satisfied collecting the dividend rather than paying up for more of the stock.
Coca-Cola’s hedge fund count slipped from 87 to 76 last quarter, while PepsiCo’s fell more modestly, from 74 to 72, which reads more like broad trimming than a rush out of either name. Short interest backs that up: 1.12% of Coca-Cola’s float is sold short compared with 2.66% for Pepsi, both low enough that neither stock is facing serious organized betting against it.
The real divide shows up in valuation. Coca-Cola’s forward P/E of 26.5 is higher than the broader market’s multiple, a price that assumes the steady, asset-light growth already on display will keep going. PepsiCo, by contrast, trades at just 16.3 times forward earnings, a discount tied to a shrinking North American business and a 2025 growth formula that leaned on price hikes rather than volume. Put the two side by side and the message is clear: Wall Street isn’t betting against either company, but it’s paying more for Coca-Cola’s consistency while keeping PepsiCo on a shorter leash until its domestic volumes recover.
Where That Leaves The Debate
Coca-Cola’s asset-light model, pricing power, and dividend record justify paying more than Pepsi commands today, and the last quarter gave that case fresh support. But the premium also means less room for error and a smaller yield than income investors might want. For the bulls, sustaining guidance raises and volume growth is what keeps 27 times earnings looking reasonable. For the skeptics, Berkshire’s own restraint since 1994 leaves open the question of whether that price already assumes too much.
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Disclosure: None.
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