3 Stocks That Feel like Coca-Cola in 1988

These three investments are poised to match one of Buffett's best long-term investments, dollar for dollar.

Anders Bylund
Anders Bylund, Timothy Green, and Steve Symington
Jun 9, 2017 at 9:16AM
Consumer Goods

Warren Buffett invested 25% of his company's assets into Coca-Cola (NYSE:KO) 30 years ago. He rode that investment to market-beating returns with a very long time horizon, cementing his legacy as a legend of money management.

It's nearly impossible to match or beat Buffett's success story with Coca-Cola, but that shouldn't stop you from trying. To get you started, we asked three of The Motley Fool's top contributors to share their best ideas on how to learn from the Oracle of Omaha's soft-drink legacy. Read on to see why they selected Under Armour (NYSE:UA) (NYSE:UAA)Skechers (NYSE:SKX), and Red Hat (NYSE:RHT).

Chart showing strong growth.

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Red Hat: They even share a color scheme

Anders Bylund (Red Hat): In 1988, Coca-Cola was already an established world leader, with annual shipments of over 200 billion soda servings. Buffett still saw tons of growth developing in the years and decades ahead, and he was proved absolutely right. Coke's share prices and annual free cash flows have grown more than tenfold in three decades.

It's a tough act to follow, but Red Hat might be up to that Sisyphean task.

This is already the largest Linux vendor and open-source software business on the planet. Red Hat boasts a dominant market share in the Linux space, as Red Hat Enterprise Linux (a.k.a. RHEL) serves as the software platform for roughly two-thirds of all Linux-based enterprise server systems. That's very much in line with Coca-Cola's branding power, just in a different market.

Here's the best part: Red Hat is staring down some massive growth opportunities, both in the enterprise platform market and in several ancillary sectors. You know, just as Coke did three decades ago.

RHEL holds just a 1.2% share of the total market for on-premise server systems, while various versions of Microsoft Windows add up to a huge 87% slice of that market. The picture changes a bit in the cloud computing segment, but Red Hat has a lot of greenfield opportunity in front of it either way.

That's just the server opportunity, which leaves plenty of additional growth to explore in emerging markets, including the Internet of Things and enterprise storage.

So I wouldn't be surprised to see Red Hat digging deeper into all of these expansion vectors over the next couple of decades, making the most of its established market leadership along the way. Looking back from the year 2047, Red Hat should look a lot like the Coca-Cola you see in the rearview mirror today.

Now's the time to buy Under Armour

Steve Symington (Under Armour): You'd be forgiven for thinking you might have missed the boat investing in Under Armour. Up until the third quarter of 2016, the performance apparel and footwear specialist had maintained an incredible 26-quarter streak of at least 20% revenue growth and delivered stellar gains for investors since its IPO in late 2005.

But amid a recent slowdown in growth caused by bankruptcies of several of Under Armour's prominent retail partners in North America last year, I think investors today enjoy an unprecedented opportunity to buy Under Armour while it's still early in its global growth story. More specifically, revenue last quarter climbed just 7% year over year to $1.1 billion, including a 1% decline in North America. But Under Armour is working hard to make up the difference, through new retail partnerships with companies such as Kohl's and DSW, as well as building its own new direct-to-consumer retail outlets and e-commerce sites.

Meanwhile, it's easy to ignore the fact that Under Armour's international revenue simultaneously climbed 52% (57% at constant currency) last quarter. But international sales still made up just 20% of total revenue, showing that Under Armour is only just getting started overseas.

On a segment basis, Under Armour also just launched Under Armour Sportswear last fall, marking its entry into the $12.5 billion fashion-driven sportswear market, which currently comprises around 25% of overall sales for larger competitors such as Adidas and Nike. In addition, Under Armour's footwear business is still in its infancy, generating sales of $270 million last quarter -- by comparison, Nike brand footwear achieved Revenue of over $5.3 billion last quarter alone -- leaving plenty of room to expand there.

With Under Armour shares down more than 50% from their 52-week high right now, I think it provides investors today with a fantastic chance to enjoy decades of market-beating growth.

Gold coins surround a globe.

Image source: Getty Images.

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An opportunity overseas

Tim Green (Skechers): It may seem like a monumental stretch to claim that Skechers feels like Coca-Cola 30 years ago. Skechers lacks the global, unmatched distribution system that puts Coca-Cola products in every corner of the globe, and its brand is nothing compared with that of the mighty soft-drink giant. But there is one key similarity -- the potential for international growth. In 1991, per capita consumption of Coca-Cola products in China was 1. In 2011, it was 38. Explosive growth in consumption in many countries helped fuel Coca-Cola's success over the past 30 years.

Skechers' domestic business is no longer growing very quickly, but its international business could grow much larger in the coming years. During the latest quarter, both the international distributor business and the subsidiary/joint-venture business produced double-digit sales increases. International sales accounted for 46% of revenue in 2016, and it's on the path to overtake U.S. sales soon.

Skechers will never be as successful as Coca-Cola -- few companies will. But like Coca-Cola, the international business will help fuel Skechers' growth in the coming years. With shares of Skechers trading for just 15 times expected earnings in 2017, now is a good time to consider buying the stock.