Coca-Cola HBC’s share price remains vastly cheaper than it was 12 months ago. In fact, it trades at a whopping 24% discount.

The descent reflects the impact of the war in Eastern Europe on its operations. It also underlines the threat that revenues could slump as consumer spending power sinks.

I’m thinking of using this weakness as an excuse to go dip buying however. Its current forward price-to-earnings (P/E) ratio of 14.5 times sits well below its historical average.

What’s more, latest financials from US-listed The Coca-Cola Company (NYSE: KO) have reinvigorated my appetite for the stock.

Fizzy results

Coca-Cola is one of billionaire Buffett’s favourite stocks. He’s held shares in the soft drinks giant since 1988. And today, it is the third-largest holding within his Berkshire Hathaway investment firm.

Brand power is an important quality that Buffett searches for when he chooses which stocks to buy. Coca-Cola’s update on Wednesday reveals how powerful this weapon is.

Organic revenues at the Coke, Sprite and Dr Pepper manufacturer leapt 16% in the three months to September, it said. Volumes ticked 4% higher year on year. And operating profit at constant exchange rates jumped 18% year on year.

Coca-Cola has been hiking prices in response to mounting costs. But thanks to the colossal popularity of its products, sales and volumes continue to rise. Demand remains rock-solid even as inflation sits at multi-decade highs.

In fact, Coca-Cola hiked its full-year forecasts on the back of its third-quarter performance.

A Buffett-like beauty

Coca-Cola HBC’s role as bottling partner of The Coca-Cola Company gives it the same benefits of brand power. But the similarities don’t end there.

Coca-Cola HBC also has considerable strength in depth. It bottles fizzy pop along with juice, water, tea, coffee and energy drinks. It also has exposure to increasingly popular categories (such as low-calorie drinks which it serves through its Coca-Cola Zero Sugar product).

This helps protect revenues from changing consumer tastes and allows it to exploit fast-growing categories.

Like its US partner, Cola-Cola HBC has a huge geographic footprint as well. This provides protection to earnings in case of localised problems. And it gives the FTSE 100 firm exposure to developing and emerging markets in Eastern Europe and Africa.

Mark the date

Coca-Cola HBC is due to release its own financial update on 8 November. I think earnings here could also beat expectations for the third quarter, resulting in impressive share price gains of its own.

The soft drinks market is a incredibly competitive one. And this presents a huge risk to the FTSE 100 company. But Coca-Cola HBC’s brilliant track record versus its rivals provides me with reassurance.

I believe recent price weakness makes this Buffett-like stock a great buy for long-term investors.

I don’t know when I’ll be able to claim the State Pension. And I have no idea whether it will provide enough to fund my retirement plans.

What I do know, however, is that I won’t be taking a chance. So I’m investing regularly in UK shares to help me build a healthy passive income for when I eventually retire.

I have about £1,000 to invest in my Stocks and Shares ISA in October. This is made up of dividends I’ve already received and new capital I plan to use. Here are two income stocks that I’m thinking of buying for my portfolio.

Primary Health Properties

I like the excellent returns that share investing produces. But I also appreciate the security that a savings account like a Cash ISA affords.

Investing in a real estate investment trust (or REIT) can help me to enjoy the best of both worlds. Like any London Stock Exchange share, these property stocks can also go up and down in value. But they also have excellent safe-haven qualities.

REITs can provide protection against inflation. This is because the rents they charge and the value of their properties usually increase when broader prices do.

Furthermore, they usually produce stable rental income which allows them to pay decent dividends regardless of economic conditions.

Primary Health Properties (LSE: PHP) is a REIT that offers investors an extra layer of security, too. This is because around nine-tenths of the rents it receives from its healthcare properties are bankrolled by the government.

I expect the company to produce solid long-term dividend income as Britain’s ageing population drives demand for primary healthcare facilities. That’s in spite of the danger posed by uncertainty over the future of the NHS.

Primary Health Properties’ share price has tanked 18% during the past month.

As a consequence, its dividend yield has leapt to 5.8%, a level I find highly attractive.

The Coca-Cola Company

Soft drinks giant Coca-Cola (NYSE: KO) doesn’t offer the mighty dividend yield of the aforementioned REIT. But a 7% share price fall since early September has driven it to a healthy 3.2%, above its usual level.

This has made Coca-Cola shares an even more appealing way for me to boost my passive income.

The beverages maker has raised its annual dividend for — wait for it — an incredible 60 years in a row. Past performance is no guarantee of future rewards but there are many reasons I expect Coca-Cola to remain a top dividend stock.

Sure it faces extreme competition from other drinks companies. But no other has the exceptional brand power of Coke, nor the colossal financial strength to develop and market its drinks to stay ahead. It generated a colossal $38.7bn of net operating revenues last year.

These are incredible competitive advantages which make Warren Buffett such a fan (his stake in the company is valued at a staggering $25bn). It’s been a brilliant long-term stock for Buffett. And I think it could be for me, too.

Many investors follow Buffett’s tips and trades obsessively, including myself. His value-driven philosophy is clear: “Price is what you pay. Value is what you get”. His investment fund reported just under £0.8bn in net earnings for FY21. It seems this philosophy holds some truth. 

Berkshire Hathaway also disclosed its total holdings on June 30. Two of the top four shares held are Chevron (NYSE: CVX) and Coca Cola (NYSE: KO) — adding up 15% of its portfolio. I think it’s time to look at whether I should buy these stocks too. 

Chevron

Energy company Chevron currently trades at a share price of $158. The stock dropped 4% last week, having leapt 63% across the last 12 months. Warren Buffett emphasises the need for reliable investing, saying he puts “a heavy weight on certainty”. But can I be certain of Chevron’s long-term prospects? 

The company reported a strong performance in its FY21 report. Net income bounced back from a loss of £0.48bn (all GBP figures at current exchange rates) to a gain of £1.4bn. Also, the stock continued its dividends of roughly 4.5p a share, demonstrating consistent financial strength. 

Yet Chevron’s position in the energy industry makes me uncertain. Governments are increasingly turning away from oil producers. Instead, aiming to use more renewable energy sources and reduce greenhouse gas (GHG) emissions. Management stated intentions to achieve net zero GHG emissions for upstream productions by 2050. 

But I think this transition is too slow compared to other industry players. For example, Powerhouse Energy has already begun development of its fully-renewable energy plants. Because of this, I don’t hold Buffett’s ‘heavy-weight certainty’ in Chevron’s long-term prospects. I won’t be adding the shares to my portfolio right now. 

Coca-Cola

Coca-Cola’s stock has enjoyed a smoother recent journey. The share price has slowly risen just under 10% in the last year, now sitting at $61 a share. 

Yet Coca-Cola didn’t inspire confidence with its recent Q2 report. Operating margins fell from 29.8% to 20.7% year on year. This led to cash flows from operations declining a total £0.87bn. Management blamed this fall on currency headwinds and increased marketing investment. Also, total assets decreased by £1.03bn. This all led to the share price falling 4% in the last month. 

However, it’s not the share price Buffett focuses on. It’s the value found in the business’s core structure that he underlines. In this case, Coca-Cola would seem to be a no-brainer buy. Huge brand recognition and operations spanning across five continents suggest that the beverage titan could be a safe long-term hold. 

But the company has recently suffered sizeable crashes in margins and total assets. Because of this, I think Coca-Cola may not have such good prospects across the coming years. While Warren Buffett has added shares to his portfolio, I won’t be adding them to mine any time soon.

Apple

Buffett took decades to buy shares in Apple (NASDAQ: AAPL). But when he finally invested, he certainly made a profitable choice. At the end of last year, Buffett’s $31bn Apple shareholding was showing a $130bn profit even before taking dividends into account.

The company is now the largest shareholding in the portfolio at Buffett’s company Berkshire Hathaway. Although Buffett has sold some of his Apple stock – perhaps to avoid overconcentration in his portfolio as the price rose – he still owns most of the stake he built up.

Pundits seem constantly to be predicting imminent bad news for the Apple share price, due to a perceived lack of innovation. But I see that as positive. Apple’s disciplined approach of keeping its product portfolio small makes it simpler for the company to focus on a few blockbusters. It reduces cost and complexity in the business. The brand remains aspirational and has a large installed customer base. That helps generate massive cash flows. Operating cash flow last year was $2bn a week.

I have some valuation concerns about Apple given its price-to-earnings ratio of 26. That looks pricey to me. But the company does have a proven ability to produce strong earnings growth. For that reason, I would consider buying it for my portfolio.

American Express

Buffett’s position in financial services giant American Express (NYSE: AXP) has an interesting history. He bought it during what was known as the ‘salad oil scandal’. A small company was involved in a form of invoicing fraud. But the consequence was huge for a number of financial services shares.

The news hammered the American Express share price. But Buffett reckoned it was a storm in a tea cup. The business concerned was connected to only a very small part of American Express’ revenue. So when the stock market beat down the Amex share price, Buffett loaded up. He now owns 19.9% of the company. That stake cost him $1.3bn but has risen in value to $24.8bn.

It is a classic example of Buffett “being greedy when other investors are fearful”. The basic economics of American Express give it what the ‘Sage of Omaha’ calls a moat, or competitive advantage. The brand is prestigious and has a large installed base of both users and merchants. But Buffett was able to buy it at an attractive price. Can I?

Currently, Amex trades on a P/E ratio of around 18. I would prefer it to be cheaper, so if there is a pullback in the share price I would consider buying it for my portfolio. I see Amex as the sort of business that has excellent long-term prospects. But growing economic weakness in key markets like the US could see borrowers defaulting more. That may hurt profits. If that concern leads to a share price fall, it could give me a buying opportunity.

Coca-Cola

Another longstanding holding in Warren Buffett’s portfolio is the drinks maker Coca-Cola (NYSE: KO). As well as its namesake sugary drink, the company owns a wide portfolio of brands in markets worldwide.

Again, this is a business with a classic Buffett-style moat. Only Coca-Cola has the brand name and formula for its most famous drink. It also has a complex set of distribution arrangements that effectively mean it is the default soft drinks supplier to many retailers and other drinks outlets. The manufacturing cost is low, which means Coca-Cola can benefit from high profit margins.

Although there is a risk that health-conscious consumers will increasingly shun ‘unhealthy’ drinks, the company has been trying to diversify its portfolio for years to help it reflect this concern. Meanwhile, the underlying business model remains attractive. I think it could stay profitable for decades to come.

But while the Coca-Cola share price has increased 22% over the past year, I find it hard to get excited about the prospect of owning the shares. At 28, its P/E ratio is higher than Apple’s – but I do not think its earnings growth prospects are anywhere near as promising. At the moment I would not buy Coca-Cola for my portfolio.

HP

Warren Buffett’s latest shareholding, announced this month, is in computing equipment company HP (NYSE: HPQ).

I find it hard to see HP as a great company. It has some brand recognition, both in computers and printers. But if I think about the sort of comments I hear from Apple customers, the comparison becomes stark. I cannot remember anyone ever raving to me about an HP product let alone the HP brand.

Where is the moat here? The business model may be attractive – overpriced print cartridges are a classic example of the so-called razor and blade model where pricey refills offer attractive profit margins. But that is true of any printer maker, not just HP.

I just do not see what is compelling about the HP business and would not buy it for my portfolio.

Verizon

Another company that does not excite me much is telecoms provider Verizon. But while the brand may not elicit much emotional response from me, the business model is something I do find attractive. Due to the high capital expenditure required to build and run mobile networks, companies like Verizon that do it have a moat. Its huge installed customer base gives it economies of scale.

Demand for mobile telecoms is probably going to keep growing, in my opinion. It is a highly cash generative business. One risk is that that cash gets used up to fund the capex. But when that does not happen, a company like Verizon can generate big profits to fund dividends. With a 5.3% dividend yield, I would be happy to tuck Verizon away in my portfolio.

Investing like Warren Buffett

What works for Buffett will not necessarily work for me as an investor. But using a similar approach of looking for excellent companies at attractive prices, I could see myself buying several of these shares for my own portfolio.

When stocks fall sharply, it can sometimes be a great opportunity. But it can also be a sign that previous prices were unjustifiably high. So are growth stocks now a bargain? Or do they have further to go?

Investing in growth stocks

Buying shares in a company involves taking a partial ownership in the business. And the return on the investment comes from a company’s earnings. 

Let’s compare two companies. Five years ago, Coca-Cola (NYSE:KO) shares sold for $43.15 and the company produced $1.49 in earnings per share (EPS). By contrast, shares in Amazon.com (NASDAQ:AMZN) sold for $925 and the company generated EPS of $4.90.

On the face of it, Coca-Cola stock was a much better investment five years ago. Coca-Cola shares were offering an annual return of 3.45%, whereas Amazon.com shares were returning just 0.53%. But it’s not as straightforward as that.

Coca-Cola now makes $2.25 in earnings per share. Over the last five years, it has produced a total of $7.9 per share, which amounts to a return of 18.3% on an investment made in 2017. By contrast, Amazon.com now makes $64.81 on a per share basis and has produced $160.84 in EPS over the last five years, giving a return of 17.39%.

Amazon is an example of a growth stock. At current levels, returns on growth stocks are very low. But the idea is that they will increase their earnings to produce strong returns for investors over time.

Risks with growth stocks

A lot can go wrong with growth stocks. First, the anticipated earnings might not materialise. If Amazon’s earnings per share had never risen above $5, then the investment return would have been terrible.

Second, an investor can overpay for a growth stock. If I’d paid $3,000 for a share in Amazon five years ago, I’d have had a very unsatisfactory return despite the growth in the company’s earnings. 

The sharp fall in growth stocks has been the result of both risks materialising together. In recent earnings reports, companies like Netflix and Meta Platforms have suggested that their anticipated growth may be lower than expected. 

Equally, rising interest rates have caused some investors to think that they might have overpaid for growth stocks in the first place. As interest rates rise, the attractiveness of companies that currently produce low earnings decreases.

This brings us to the question of whether there are opportunities in growth stocks at the moment. My view is that there are, but I’m looking to tread carefully and be selective in the opportunities that I’m taking. 

One growth stock that I like very much at the moment is Guidewire Software. The price of its shares has declined substantially over the past six months, but the underlying business still seems to be growing well. As a result, I’m looking at buying shares for my portfolio as the general sentiment against growth stocks remains negative.

Let’s explore whether I’d buy these Warren Buffett stocks today.

Coca-Cola — Warren Buffett’s oldest stock position

Warren Buffett first bought Coca-Cola (NYSE: KO) stock in 1988. Accordingly, the soft drinks manufacturer was actually a stalwart of Buffett’s portfolio even before the relatively mild US recession in the early 1990s.

Berkshire acquired 400m Coca-Cola shares at around $3.25 per share. It’s never sold a single one. The Coca-Cola share price is now over $65, meaning the holding is valued in excess of $26bn today — a stunning unrealised gain of over 2,000%. On top of that, Warren Buffett (or at least, Berkshire Hathaway) earns an annual dividend yield above 50% on his initial investment.

Today, Coca-Cola’s in good financial shape. Net revenues grew 17% in 2021, operating income was up 15% and cash flow increased 28%. Moreover, the company continues to innovate with a new product range for 2022, including Coca-Cola with Coffee Mocha.

Based on consensus forecasts, the stock is arguably pricey at present, trading at 27x current year earnings. Nevertheless, I think there’s still value in this high-margin, cash-generative business that has increased its dividend regularly for the past 59 years.

American Express — Berkshire’s third-largest stock holding

Warren Buffett first invested in American Express (NYSE: AXP) back in 1963, when it was a young company mired in scandal, but began building the stake he owns today in 1993. Currently, the billionaire holds 151.6m shares, worth $29bn in total.

The American Express share price is up nearly 22% over 12 months. Last year, revenue grew 17% and total cardholder spending rose 25%. Additionally, AmEx recently raised its dividend by 20% to $0.52 per share.

Looking ahead, American Express stock should benefit from a continued recovery in the travel sector. Travel consultancy and associated card rewards have been historically important revenue streams.

As monetary policy tightens, the US economy may enter a recession in 2023. This could negatively impact the AmEx share price if consumer spending falls. However, the card payment company has always rebounded after recessionary shocks before and its long-term prospects still look good to me.

Would I buy?

A bear market could be imminent, but studying Warren Buffett’s long-term investing approach eases my worries. Buying and holding carefully selected stocks through thick and thin has handsomely rewarded the Oracle of Omaha over decades.

American Express and Coca-Cola currently trade near all-time highs. This could mean further upside is limited. Indeed, Berkshire built both positions years ago at considerably cheaper prices than today. However, they’re still in its top four stock market holdings, with no signs of selling.

In Buffett’s own words: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” AmEx and Coca-Cola are clearly wonderful companies in his view. That’s good enough for me.

Warren Buffett has a unique gift for identifying wonderful companies at wonderful prices. I’ll settle for those same companies at fair prices. I’d buy both shares today.

The crashing Coca-Cola share price

Seeing the simple act of moving two Coca-Cola bottles off-camera appears to have created some uncertainty surrounding the business. After all, Cristiano Ronaldo is a highly influential figure. And his actions may have a tangible impact on beverage sales not only during the Portugal vs Hungary match, at other times. The company did make a statement saying “everyone is entitled to their drink preferences”. But that seems to have done little to calm investors.

However, as shocking as the thought of $3.8bn being wiped out is, it’s important to put it into perspective. Coca Cola is an enormous business with an absurd amount of branding power. In reality, $3.8bn only equates to around a 1.6% negative share price movement — that’s hardly volatile.

But since the initial drop, the Coca-Cola share price has continued its downward decline, albeit at a slower pace. It now trades at around $53.70 per share. By comparison, before this event happened, it was trading at just over $56. So does this represent a buying opportunity?

The power of a brand

I think it’s fair to say that Coca-Cola may be one of the best-known brands in the world. And this recognised status has provided the business with a substantial amount of pricing power. After all, even though there are plenty of cheaper Coca-Cola alternatives available worldwide, the company still manages to sell around 1.8bn bottles per day.

Beyond the obvious advantage of charging a premium to customers, this trait may prove to be essential in the coming months. Due to the impact of the pandemic on labour and logistics, as well as a myriad of bad weather, raw material prices have reached record highs. According to the chief financial officer of Unilever, “we are seeing some of the highest commodity price inflation that we’ve seen in a decade”.

When materials costs increase, profitability suffers. This, in turn, would likely impact the Coca-Cola share price over the long term. That said, the management team and several others from Nestlé, Procter & Gamble and Unilever, have stated their intention to pass these additional costs on to customers. This means the profitability of Coca-Cola should be largely unaffected by the direct impact of the commodity shortage.

The risks of reputational damage

I think the market has overreacted to Cristiano Ronaldo’s choice of beverage. But there’s some reasonable cause for concern regarding reputation. It’s not exactly a secret that many Coca-Cola’s drinks aren’t ‘healthy’. And with many people becoming more health-conscious due to Covid-19, Coca-Cola may start to suffer from reputational damage.

It isn’t easy to measure the extent of this. But over the long term, this may ultimately undercut its pricing power moving forward. And without this essential advantage, the share price could begin to tumble. 

But despite these risks, I personally believe the recent drop presents an opportunity for me to snatch up some shares and enjoy a seemingly uncompromised 3% dividend yield. Therefore I would consider adding this business to my portfolio.

Here, I’m going to highlight three Buffett-owned stocks I’d buy for the current bull market. I think all three have the potential to climb higher in the near term (and, importantly, the long term).

Amazon

One Buffett-owned stock I think looks very interesting right now is Amazon (NASDAQ: AMZN). It’s actually been a bit of a laggard in this bull market. While the S&P 500 has hit new highs recently, Amazon is still about 5% below its all-time high, set in September last year. I see this share price weakness as a buying opportunity.

Since the beginning of last year, Amazon has added 50m new Prime subscribers taking its total number to 200m. That’s an unbelievable rate of growth. Incredibly, 28% of these Prime customers buy something in less than three minutes when they hit the site, while half of all purchases are finished in less than 15 minutes. Given this huge, growing customer base, I think Amazon stock could be a great way to play the global economic rebound.

I’ll point out that the valuation here is quite high, which adds risk to the investment case. Currently, Amazon sports a forward-looking P/E ratio of about 70. If growth slows, the stock could underperform. However, given Amazon’s dominance (in both e-commerce and cloud computing) I’m comfortable with this risk.

Visa

Another Buffett stock I’d buy today is Visa (NYSE: V). It’s the world’s largest payments company. For every $1 spent at physical locations globally, about $0.15 goes through Visa’s payments network.

And Visa looks set for strong growth, in my view. In the short term, it should benefit from increased spending (many consumers are cashed up after lockdowns) and the return of travel. Meanwhile, in the long run, it should benefit from the shift away from cash towards electronic payments.

However, Visa isn’t a cheap stock. Currently, it sports a forward-looking P/E ratio of about 41. This adds risk. Another risk to consider is competition from FinTech players such as PayPal and Square. But overall, I think the long-term risk/reward proposition here is attractive.

Coca-Cola

Finally, I think Coca-Cola (NYSE: KO) – one of Buffett’s favourite stocks of all time – could be worth a closer look right now.

Coca-Cola strikes me as a classic ‘reopening’ stock. Last year, Coke struggled due to the coronavirus. For the year, revenue was down 11% while earnings dipped 13%. The rollout of the vaccine looks to be a game-changer, however. With restaurants and bars now opening, travel resuming, and live events set to start up again in the near future, Coke looks well-placed for a recovery. This year, Wall Street analysts expect revenue growth of about 11%.

Of course, the timing of this potential recovery remains uncertain. It could be a while before the world’s truly back to normal. Coke could continue to face challenges in the near term.

However, with many economists predicting a ‘roaring 20s’-like environment in the years ahead, I think Coke is a good stock to own as part of a diversified portfolio. The current valuation (forward-looking P/E ratio of 25) seems fair, to my mind, given the company’s competitive advantages.  

The marijuana industry has truly budded in 2018. It’s been a year in which we’ve witnessed numerous marijuana firsts, including the most important event of all: Canada becoming the first industrialized country in the world to legalize recreational marijuana. The cannabis industry has gained legitimacy this year, and the expectation is that billions of dollars will begin flowing into legal channels through the remainder of this year and beyond.

Investors have clearly taken note of this opportunity to make some green of their own. Although it’s been an exceptionally volatile industry, which is to be expected given that there’s no precedent for an industrialized country legalizing adult-use weed, marijuana stocks have been the top-performing industry since the beginning of 2016.

IMAGE SOURCE: GETTY IMAGES.

Brand-name businesses turn to cannabis for growth

Of course, it isn’t just investors that’ve taken notice. Brand-name companies in the beverage, tobacco, and pharmaceutical industries have been looking for ways to boost their own potentially stagnant sales growth by partnering or investing in the cannabis industry.

On Aug. 1, Molson Coors Brewing Co. announced a joint venture with Quebec-based HEXO Corp.  to develop a line of cannabidiol-infused beverages. Cannabidiol, or CBD, is the nonpsychoactive cannabinoid best known for its perceived medical benefits. Molson Coors has seen years of declining sales and market share in Canada, and HEXO, though possibly a top-10 producer by aggregate volume at 108,000 kilograms in estimated peak yield, is looking to make a name for itself in an otherwise crowded field of growers. Then again, both Molson Coors and HEXO will need to be patient, as CBD-infused beverages, along with vapes, concentrates, and edibles, aren’t yet legal in Canada.

Constellation Brands also bit on the cannabis craze — and more than once, might I add. Just two weeks after Molson Coors forged its deal with HEXO, the Corona and Modelo beer maker announced its intent to invest $3.8 billion in Canopy Growth Corporation. This marked the company’s third investment in Canopy Growth and should bring its stake up to 38%. In addition to product development, which will almost certainly include CBD-infused beverages, Constellation Brands will help Canopy Growth enter new foreign markets.

Pharmaceutical companies have gotten in on the action, too. Novartis‘ generic-drug subsidiary Sandoz announced a strategic partnership with Tilray back in March to sell co-branded products in pharmacies and hospitals throughout Canada, as well as to collaborate on research and development of cannabinoid-based products.

In other words, brand-name companies see plenty of potential in the burgeoning pot industry.

Well… most brand-name companies, at least.

IMAGE SOURCE: COCA-COLA.

Coca-Cola’s interest in CBD-infused beverages fizzles out

On Tuesday, global beverage powerhouse Coca-Cola (NYSE:KO) reported its third-quarter operating results, and among the many things that management touched on was the company’s interest in the cannabis space.

For those who may not recall, Coca-Cola made headlines in September when BNN Bloomberg reported that the company was in talks with Aurora Cannabis about potentially teaming up and/or making an investment. A deal would certainly have seemed to make sense. Aurora Cannabis is projected to be the largest producer by annual yield — 570,000 kilograms, per the company, although this should head higher with its ongoing acquisition of ICC Labs — and has its footprint in more than a dozen foreign countries. In short, Aurora Cannabis appeared to have an inside track to snagging a partner of Coca-Cola’s caliber.

But Coca-Cola closed that door this past Tuesday. During the company’s conference call, CEO James Quincey told analysts that “We’ve got no plans in the cannabis or marijuana or CBD space at this moment. I don’t see that as something that we’ll be getting into anytime soon. It’s just not something we’re interested in.”

Ouch! Not only did Coca-Cola step on near-term rumors of partnering up with Aurora Cannabis, but it poured water on what had been a red-hot industry. 

IMAGE SOURCE: GETTY IMAGES.

Here’s why Coca-Cola suddenly has cold feet

So, why the sudden about-face from Coca-Cola?

One possible reason is the time it’ll take for the industry to get up to speed. It took mere hours for some regions of Canada to run into product shortages (looking at you, Manitoba), which means it could be multiple quarters before pot companies would be able to devote their attention to CBD-infused beverages. If marijuana companies can’t produce what a company like Coca-Cola needs, there’s little incentive to make a deal.

Second, Coca-Cola may not be enamored with the Canadian market. Even though legalization is expected to bring in upwards of $5 billion in added annual sales, there are other markets that would be considerably larger if cannabis became legal in them. Perhaps if the U.S. were to change its tune on cannabis, Coca-Cola would dip its toes in the pond, so to speak. Until that time, there may not be enough financial incentive to get Coca-Cola involved.

Last, there’s also the possibility that Coke felt marijuana stocks were grossly overvalued. After all, history has shown that all next-big-thing ideas have eventually deflated prior to industry maturation over the past quarter century. If Coca-Cola were to invest in Aurora Cannabis, it probably would have had to pay a premium. Had it paid, say, a 20% premium in mid-September, it’d be down nearly 50% on its investment.

Whatever the reason(s) may be, it’s time to cross Coca-Cola off your list as a possible investor or partner in the cannabis space.

WASHINGTON, DC — After announcing disappointing third quarter 2014 results, Coca-Cola (NYSE: KO.US) saw its stock plummet by 6% on October 21, erasing nearly $10 billion of market value.

And just what caused the largest single day dip in its stock price in over six years for one of America’s most beloved beverage makers? As the Wall Street Journal reported:

Coke continues to flail around for a solution to the shrinking ranks of soda drinkers in the U.S., China, Brazil and elsewhere. Profit was down 14% in the quarter, volume targets were missed, and Coke lowered its long-term revenue target and warned it will miss its profit target — not only this year but next.

While it has clearly been one of the best investments over the last century — as Warren Buffett tells us, $40 invested in Coca-Cola when it went public in 1919 would be worth more than $10 million today — such disappointing results have caused many to wonder exactly what the future holds for one of the greatest icons of American business success.

All of this begs the question, will Coca-Cola be around 100 years from now?

The simple answer
While we’re all likely familiar with the disclaimer required by the SEC, “performance does not necessarily predict future results,” the simple answer is: absolutely.

But it isn’t just that Coca-Cola will be around 100 years from now, but all signs point to the fact it will likely continue to thrive.

Incredible expansion
Although this is an investing website, when considering what the next 100 years will look like for a company, a glance at its latest bottom line results won’t do much good. Instead we must step back and consider the bigger picture.

At its core, what exactly does Coca-Cola do? It sells drinks of course.

And just how well is it doing that? Consider that over the last decade, the number of Coca-Cola products consumed each day has risen by 600 million:

Said a little differently, 219 billion more 8 ounce servings of Coca-Cola products are being consumed each year. Or if you want to be even more specific, that amounts to nearly 7,000 additional drinks each second. To put that into perspective, when it was founded in 1886, just nine beverages were served each day. 

All of this is to say, Coca-Cola has been growing at an incredibly rapid pace over the last 128 years, and it has no sign of slowing down anytime soon.

Billion dollar brands
So how has Coca-Cola delivered such incredible results? Consider for a moment the words of Warren Buffett from his 2007 letter to shareholders:

A truly great business must have an enduring “moat” that protects excellent returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business “castle” that is earning high returns. Therefore a formidable barrier such as a company’s being the low- cost producer (GEICO, Costco) or possessing a powerful worldwide brand (Coca-Cola, Gillette, American Express) is essential for sustained success.

Or those from his 2011 letter:

“Buy commodities, sell brands” has long been a formula for business success. It has produced enormous and sustained profits for Coca-Cola since 1886 and Wrigley since 1891. On a smaller scale, we have enjoyed good fortune with this approach at See’s Candy since we purchased it 40 years ago.

With a value of nearly $82 billion, recognize Coca-Cola itself is the third most valuable brand in the world according to Interbrand. In addition, Sprite, a Coke product, has a brand value of $5.6 billion, placing it 72nd on the list, ahead of other well-known brands like Starbucks,Chevrolet, and Ralph Lauren. In total, of its 111 total brands, 17 have a value of over $1 billion. 

Source: The Motley Fool.

And it’s not just that its brands are valuable, but they are also beloved. At the time of writing, Coca-Cola has nearly 90 million Facebookfans, which is nearly twice as many at second and third place brands — Red Bull andMcDonalds — combined. 

Knowing one of the greatest investors of all time believes brand value is a key to success, there is much to like about the position Coca-Cola has placed itself — and its brands — in.

An eye toward the future
With its remarkable success and incredible brand power in mind, it must be noted that Coca-Cola has not been content to just rest on its laurels and believe success will simply come its way.

Knowing consumer habits and dynamics are changing, it has aggressively pursued equity stakes in companies like Green Mountain Keurig and Monster Beverage Corporation, and it now owns roughly 16% of each. In addition, it bought Glaceau — the company which makes Vitaminwater — for $4.1 billion in 2007.  

In many ways, Coca-Cola has taken a page out of the handbook of Buffett’s Berkshire Hathaway, as it has continually recognized its need to use the massive amount of cash it generates to make acquisitions that will in turn continue to deliver more and more value to shareholders.

Source: Coca-Cola

The key takeaway
Speaking of Buffett, at the end of last year, the 9.1% stake in Coca-Cola — which cost him $1.3 billion to accumulate between 1988 and 1994 — was worth a remarkable $16.5 billion.

And that is to say nothing of the countless amounts of cash Berkshire Hathaway has received in the form of dividends.

With that said, it’s no wonder why he has so happily heaped praise on Coca-Cola throughout the years.

But what does he think the next 100 years will hold for Coca-Cola?

In his own words from 2011:

Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola or some See’s peanut brittle. In the future the U.S. population will move more goods, consume more food, and require more living space than it does now. People will forever exchange what they produce for what others produce.

It’s no wonder he admitted he’d never sell a single one of his 400 million shares.

After all, he himself once said, “time is the friend of the wonderful business.”