Two of legendary investor Warren Buffett's favorite stocks when he retired from Berkshire Hathaway at the end of last year were Coca-Cola (KO 0.45%) and Apple (AAPL +1.02%). While both stocks are in very different businesses, they share two important things in common. They are both iconic brands that are great long-term compounding businesses.
This should see both businesses thrive over time. However, how they compound their businesses is quite different, which is why I think one stock has a very distinct edge.
Image source: The Motley Fool.
Coca-Cola: Unmatched brand equity
Warren Buffett first began buying shares of Coca-Cola in 1988, and he's never sold any shares. In fact, he has said his favorite holding period for the stock is "forever." Today, the stock remains Berkshire's fourth-largest holding.
NYSE: KO
Key Data Points
What makes Coca-Cola such an attractive business is that it actually doesn't sell soda -- it sells the syrup to make its famous soda brands. This is a high-margin business, while its independent bottling partners take on all the heavy capex spending of owning the plants and delivery trucks.
Coca-Cola instead puts its high-margin profits behind marketing and innovation, which contributes to a flywheel effect that keeps its brands growing and relevant. This has given the company unmatched brand equity, while it has also created a huge global distribution moat.
Apple: The ecosystem lock-in
While Berkshire has been selling off its Apple stake under Buffett, that was largely because the stake had become so enormous. The stock remained Berkshire's largest holding at the end of 2025, representing more than 22% of the company's stock portfolio.
NASDAQ: AAPL
Key Data Points
Like Coca-Cola, Apple has a great compounding business model, but it's accomplished in a much different way by locking customers into its ecosystem. Once someone purchases an iPhone or another Apple product and it becomes ingrained in their everyday lives, it becomes difficult to switch. That just compounds over time with every photo people take with their smartphones and every app they purchase.
Apple has very much established itself as an upscale brand known for stylish products that just work. It may not be at the forefront of technological innovation anymore, but it tends to attract a more affluent user base. Meanwhile, Apple's real growth engine is its high-margin services and payments businesses. Every time users pay for iCloud storage, Apple music, or an App store subscription, it provides the company with a high-margin, recurring revenue stream that locks users further into its ecosystem.
The winner
Coca-Cola and Apple have two of the world's great business models, but Apple's is ultimately hard to beat. The company has essentially become a high-margin toll road through its services and payments businesses that have locked in billions of the world's most affluent consumers. While Coca-Cola is a product company based on brand affinity, Apple is a platform company embedded in its users' lives. That makes it a stock you want in your portfolio forever.
