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Anyone else find it interesting that Warren Buffett continues to hold the line on Berkshire's stake in his preferred drink of choice, Coca-Cola (KO) ?
Sure, Buffett nearly quadrupling its stake in Action Alerts PLUS charity portfolio holding Apple (AAPL) and increasing its position seven-fold in the four biggest U.S. airlines certainly creates more buzz. But, at least from an outsider's perspective, there are at least two reasons why Buffett should have nibbled at Coca-Cola last year, instead of keeping his stake at roughly 400 million shares, or 9.27% of Coke's outstanding shares (Berkshire is Coke's biggest shareholder).
For starters, Coke's stock has under-performed the S&P 500 over the last year, falling 6.3% compared to the broader index's 22% advance. The Dow Jones Industrial Average has raced about 27%. Buffett is always keen on getting the most bang for his investment buck, and on paper it would seem the opportunity to buy a Coke that is out of favor with the seemingly dumb Wall Street would be a cool idea. That is especially the case in light of the second factor.
Coca-Cola is targeting a $3 billion cost-savings goal by 2019, helped by the re-franchising of bottling operations by the end of 2017 and zero-based budgeting efforts. With a less capital-intensive Coke, that should free the company up to pay even higher dividends and boost earnings through stock repurchases. How couldn't those things pump up the often-caffeinated Buffett?