Warren Buffett’s Investment Insights: Why Apple and Coca-Cola Deserve Your Attention

Warren Buffett has led Berkshire Hathaway since 1965. Under his guidance, shares of this holding company have skyrocketed by around 4,631,475%. This remarkable growth has established Buffett as one of the most esteemed investors of our era.

Buffett understands that the price paid for a stock significantly influences the returns it can generate. To emulate Buffett’s successful investment approach, focus on acquiring shares of high-quality companies during times of lower stock prices.

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The benchmark S&P 500 index has increased by approximately 36% in the past year. Buffett seems to expect further growth, particularly from a few key stocks in his portfolio. As of the end of September, $98.6 billion of Berkshire Hathaway’s assets were invested in two underperforming S&P 500 stocks: Apple (NASDAQ: AAPL) and Coca-Cola (NYSE: KO).

Both stocks have been trading below the expectations set by Wall Street analysts. Let’s explore why these stocks are considered likely to outperform and whether they should be part of your investment strategy.

1. Apple

Although Berkshire Hathaway has reduced its Apple holdings, it remains the largest part of its equity portfolio. As of September, Berkshire’s Apple investment was valued at $69.9 billion, significantly down from $174.3 billion at the end of 2023.

During the 12 months ending November 8, 2024, Apple stock only increased by 25%, lagging behind the S&P 500. The stagnation can be attributed to the long gap since Apple launched a new product to boost sales. Revenue for the trailing twelve months fell by 0.8% since late 2022.

Despite this lack of growth, Morgan Stanley analyst Erik Woodring remains optimistic. He recently reaffirmed a price target of $273 for Apple, suggesting the stock could increase by about 20% from its recent levels.

Apple’s unit sales across all product categories declined in fiscal 2024 compared to 2022. However, service revenue has surged. Over the same two-year span, revenue from the App Store, streaming, and cloud services rose 23% to $96.2 billion.

Shifting towards recurring services enhances profit margins, which improved in fiscal 2024 to 46.2%, up from 43.3% in 2022. This trend may enable Apple to increase its dividend payout, which is currently a modest 0.4% yield. Notably, the quarterly dividend has increased by 29.9% over the past five years.

While Apple’s services segment can counterbalance declining device sales, anticipated growth is high. With the stock trading around 32.3 times its trailing free cash flow, potential investors might want to wait for a more favorable entry point.

2. Coca-Cola

As Apple faces complex challenges in product development, consider another of Buffett’s reliable picks: Coca-Cola. As of late September, Berkshire’s stake in Coca-Cola was valued at $28.7 billion.

Many investors share Buffett’s enthusiasm for Coca-Cola. Morgan Stanley analyst Dara Mohsenian recently revised their price target for the company to $76 per share, suggesting a potential gain of about 19% from current prices.

Coca-Cola’s sales growth, largely driven by its iconic brands, has been steady, although the stock has struggled lately and was down by 12% from its September peak as of November 8.

Wall Street remains positive on Coca-Cola because of its consistent performance over its long history. In the first nine months of 2024, sales increased by 2%, and management expects organic sales to grow by about 10% year-over-year in 2024.

Though Coca-Cola’s stock price has seen some fluctuations, its dividend program remains dependable. The company increased its quarterly dividend for the 62nd consecutive year in February, offering a 3% yield based on recent prices and trading at 22.4 times forward-looking earnings estimates.

With a straightforward business model and reliable growth, adding some shares of Coca-Cola to a balanced investment portfolio seems prudent for many investors.

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.