In a recent episode of The Rank on Fool Live, longtime Fool.com contributors Matt Frankel, CFP, and Jason Hall ranked the 10 largest holdings of Berkshire Hathaway (BRK.A +0.93%)(BRK.B +1.14%). In this clip, recorded on Aug. 30, you'll hear why the pair ranked one of Berkshire's best-performing investments in the bottom half when it comes to the best places to invest new money today.
Matt Frankel: No. 6 is one of Buffett's most famous positions and one that he's a famously a customer of himself, and this is Coca-Cola (KO +1.82%), ticker symbol KO.
Jason Hall: It's not Marlboro, ladies and gentlemen. Coca-Cola is a really interesting business. This is the classic Buffett story. This is the stock that he bought and paid, what was their initial investment? I don't have it right in front of me. Matt, do you know right off your head?
Frankel: It was a pretty low-cost basis. I know that. I want to say it was around $1 billion.
Hall: Yeah, I think that sounds about right. Made this investment, a billion dollars or so. Again, over time, because Coca-Cola has done what Coca-Cola does really well. It's grow its brand, grow its presence all around the world. It's that great-business-at-a-reasonable-price thesis. He's always focused on. It's funny because it's a business that we think about because of Coca-Cola, and obviously that white logo with the red background is just about everybody on Earth would recognize it anywhere. But the thing is that the company owns hundreds and hundreds of brands that are relevant in the markets and the taste of the consumers in those markets. I think the thing that's really interesting is that even as the popularity of sugary carbonated beverages has decreased, the company's ability to leverage its pricing power and its brand power has allowed it to continue to grow revenues, continue to grow cash flows, raise that dividend, every year for decades. I think it's at a point now, Matt, I don't know the exact number, but I think every year and a half or two years, Coca-Cola pays Berkshire its cost basis. It's absolutely incredible.
Frankel: The cost basis is just over $1 billion, that was right. Stake's currently worth about $19 billion. Let me see if that's correct. It's worth $22.3 billion. Given Coca-Cola's dividend yield, that means every two years, they're paying more than Berkshire's cost basis. It's not just about the brand power that you talked about it, it's also Coca-Cola has, in my opinion, the world's best distribution network of any company.
Hall: That is entirely it.
Frankel: It's not their core product. Let's say that consumer taste drastically changed and no one wants their sugary products anymore.
Hall: It doesn't matter. That doesn't hurt them.
Frankel: Just let me ramble off a couple of things that they own that would keep them in business. Ever buy Dasani water or Smartwater, those are Coca-Cola products. Vitamin Water is a Coca-Cola product. Powerade is a Coca-Cola product. Minute Maid orange juice, Simply Orange, the Fairlife dairy product brand, that's a Coca-Cola product. There are a lot of products.
Hall: Those are just the ones that us folks in North America are going to recognize.
Frankel: Right. Honest, the tea company, that's a Coca-Cola product. They keep inventing better diet cola products.
Hall: Right. I think they're starting to dabble and move back in toward alcoholic beverages too. I think that's just in this for a long time.
Frankel: There's a lot that's going to keep them in business. Consumer tastes are not changing around the world the same way they are here. Classic Coca-Cola products are still very popular. They operate in more than 200 countries and in a lot of them, the classic products are not declining in popularity to put it mildly.
Hall: They're gaining in popularity.
Frankel: That distribution network, not only have the pricing power, but they can get their product all around the world cheaper than their competitors can. They've raised their dividend every year. They are a Dividend Aristocrat, I know that and I don't see that changing anytime soon. They're one of Berkshire's best income stocks and one that Buffett will not get rid of as long as he has anything to do with it. I think they'll own that for long after he is no longer in charge.
Hall: Fifty-nine straight years.
Frankel: That's one of the best Dividend Aristocrats. I think that's a Dividend King, they call that, where there are over 50 years. It's amazing company.
Hall: It really is. It's good and it's a company that's already built so that it doesn't have to have a dynamic superstar leader, just somebody that's operationally sound.
Frankel: Buffett called Coca-Cola a ham-sandwich company because it's a company that a ham sandwich could run.
Hall: Ham sandwich could run, yeah. Absolutely love it. I'm guessing, Matt, you and I both put this one in the middle of the pack largely for the same reason and it gets back to that valuation thing.
Frankel: Valuation and upside potential. I like stocks that have a great combination of good value and a lot of upside potential, and I feel when Buffett bought Coca-Cola just after the crash in 1987. Clearly, he saw a great combination of value and upside potential over the long term. I feel that's a little more limited today. But again, if I were closer to retirement age, same thing with Verizon, I would probably put Coca-Cola a lot more highly on my list if I were in it for the income more than I am. I'm a value investor, but I don't really care that much about dividends at the moment, I guess is the best way to describe my style and I think that really factored into my rankings here.
