To say that Warren Buffett and Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) are among the most discussed topics in the investment world would be an understatement. The "Oracle of Omaha" holds almost a cult following thanks to his remarkable investment prowess throughout his lifetime. With that said, a lot of people probably don't actually take the time to look into all of the holdings that Berkshire Hathaway has.
Buffett is very fond of financial-sector companies, and holds a lot of Berkshire Hathaway's capital in bank stocks. The conglomerate also has a massive investment in Apple. However, the two names that I like the most right now are Coca-Cola (NYSE:KO) and Costco Wholesale (NASDAQ:COST).
Coca-Cola seems to have revived itself after a few years of troubling revenue trends. Products like Coca-Cola Zero Sugar, Vanilla Coke, and Cherry Coke have helped the company return to growth. Moreover, moves into energy drinks and coffee have opened up new avenues for growth at Coca-Cola. The beverage giant acquired Costa Coffee last year for $4.9 billion. The coffee chain is based out of the U.K. and has had widespread success. The deal gained Coca-Cola a coffee operation spanning 30 countries.
Coca-Cola finished 2019 with 16% revenue growth in the fourth quarter (7% on an organic basis) and 9% growth for the year. Full-year operating income increased 10%, while full-year earnings increased 38% on a generally accepted accounting principles (GAAP) basis and 1% on a non-GAAP basis. The company's fourth-quarter adjusted earnings of $0.44 per share were enough to meet analysts' estimates, while revenue of $9.07 billion outpaced estimates of $8.89 billion. Coca-Cola attributed its strong sales growth last quarter to new products, including Coke Zero Sugar and Coke Plus Coffee.
Looking ahead, Coca-Cola expects organic revenue growth of 5% in 2020. It also anticipates that adjusted earnings per share will increase 7% to $2.25. Coca-Cola trades for 29 times trailing earnings, based on its full-year 2019 GAAP EPS of $2.07. That's pricey, but I still like the developing picture here. Coffee is a big market, and the company has set itself up to be a bigger part of that story.
Over the last five years, Costco shares have nearly doubled the S&P 500 index's return, soaring 116%. Over the last decade, shares have surged 436% vs. the S&P 500's 214% gain. The discount retailer is one of the few big names that retains the scale to compete with the likes of Amazon and Walmart.
In the first quarter of the company's fiscal 2020, comp sales increased by 4.3% year over year, with a 5.5% increase in e-commerce comp sales. On an adjusted basis, which excludes the impact of fuel price changes and currency volatility, comp sales increased 5%, with e-commerce growing 5.7%. Total net sales increased 5.6% year over year to $36.24 billion. Investors enjoyed 9.8% year-over-year growth in EPS, which reached $1.90.
Costco also posted strong results during fiscal 2019. Revenue rose 7.9% to $152.7 billion, while GAAP net income jumped 16.8% to $3.66 billion. Based on its full-year diluted earnings of $8.26 per share last year, Costco stock trades for 38.5 times trailing earnings. Ordinarily, I'd never go anywhere near something like that. But within retail, it's getting difficult to avoid paying for the big names that are competing successfully with Amazon.
Costco's full-year fiscal 2019 comp sales growth came in at 6.1%, with 23.3% adjusted comparable sales growth in e-commerce. I've long held that the retailers that can create a complementary balance between brick-and-mortar and digital sales will be the ones to succeed in the future. You can't buy everything online, no matter how much you want to.
Analysts expect steady earnings growth over the next few years, with EPS expected to reach $8.63 per share in fiscal 2020. This still implies a steep premium for shares, but that seems to be the price one has to pay for a stock like this these days.
Coca-Cola and Costco aren't the trendiest names in the Berkshire portfolio right now, but over the long term, their businesses perform. It's a testament to Warren Buffett's investment approach. Coca-Cola is broadening its horizon with coffee and energy drinks, along with an emphasis on offering slightly healthier versions of its more traditional offerings. Meanwhile, Costco continues to hold a very strong place within retail. Its scale allows it to compete on pricing, and its comp sales figures seem solid.