NEW YORK (TheStreet) -- Coca-Cola (KO) has long been a favorite of legendary investor and Berkshire Hathaway (BRK.A) chairman and CEO Warren Buffett, an affinity that's rewarded him and his shareholders handsomely over the years.
But with consumer preferences around the world shifting to all-natural food ingredients at fast-food joints and grabbing "better-for-you" snacks at grocery stores, the "Oracle of Omaha's" unmatched investment judgment seems to be getting cloudy when it comes to his beloved Coke.
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"If you're looking for a wonderful business, it's hard to beat Coca-Cola," said Buffett in a surprise appearance at the company's annual meeting on Wednesday. Seeking to counter claims by advocates that Coke's products have too many calories, the folksy Buffett added, "One-quarter of all the calories I've consumed come from Coca-Cola, and I tell you I feel healthy."
Unfortunately for Coke, Buffett's relative health, given his diet, may make him a true outlier. According to the Centers for Disease Control and Prevention, 29.1 million people, or 9.3% of the U.S. population, now have diabetes. More than one-third, or 78.6 million, of U.S. adults are considered obese.
As a result, Buffett's comment in the below video from Coke's annual meeting may be oddly telling as the company's future. "Of course, I could buy the world of Coke," he said, "but I am not sure if my shareholders would go for that."
Admittedly, knocking Buffett's judgment on Coke is tough. According to Berkshire's 2014 annual letter, the cost basis for its Coke holdings, which the company began accumulating in 1988, is $1.29 billion. The market value for that stake at the time the report was issued in February was a whopping $16.9 billion. The industrial and insurance conglomerate now owns roughly 9.3% of Coke as the soft drink maker has recently plowed billions of dollars to share repurchases. Coca-Cola is considered one of Berkshire's "Big Four" equity holdings, right alongside America Express (AXP), IBM (IBM) and Wells Fargo (WFC).
An unrealized gain by Berkshire on Coca-Cola of such a magnitude reflects Buffett's foresight on the storied soda brand many years ago. Just a few of the wagers the much younger Buffett made correctly included how Coca-Cola would still hold the dominant cola market share in the U.S. over arch nemesis PepsiCo (PEP); how numerous execs brought through Coke's ranks would address new growth areas in packaged water, sports drinks and teas; and how Coke would further penetrate emerging markets as the incomes of their residents expanded.
However, Buffett should consider channeling that old-school foresight he applied years earlier to Coca-Cola and think about what several changes occurring in the world today may mean for Coke 10, 20, 30 years in the future. The stock market may be doing some homework of its own -- over the past two years, Coke's shares have declined 3.6%, Pepsi's have gained 14.9%, and Starbucks (SBUX) stock has risen a cool 60.4%.
As of today, Buffett's world of Coke is largely not partaking in the latest trends among consumers. The company has no snacks division. Its trademark Coca-Cola beverages accounted for 45% of the company's U.S. unit case volume in 2014. Its embattled chairman and CEO, Muhtar Kent, has gone on record in support of keeping artificial sweetener aspartame in its drinks, even as consumers shun the ingredient because of health concerns.
An in-depth reassessment by Buffett himself on Coke seems unlikely given his longtime attachment to the brand. So that needed assessment is likely to fall on the shoulders of Buffett's two handpicked successors who are managing Berkshire's equity portfolio -- Todd Combs and Ted Weschler. The co-managers could decide to pull the trigger on a reduction in the exposure to Coca-Cola's murky future once a deeper, clear-headed analysis is made. TheStreet takes a look at two major reasons why such reassessment is warranted.