If you aspire to emulate Warren Buffett’s investment acumen, it’s vital to adopt his long-term approach to holding stocks. When questioned about the ideal holding period for the stocks in Berkshire Hathaway’s equity portfolio, the Oracle of Omaha firmly asserts, “forever.”
Regardless of the duration of stock ownership, the purchase price significantly influences your overall returns—a key aspect of Buffett’s strategy.
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At present valuations, approximately $24.6 billion of Berkshire’s equity portfolio is allocated to two companies currently catching the attention of Wall Street analysts. Updated price targets by analysts at Citi suggest that these stocks could appreciate by 37% and 14% over the next 12 months.
Amazon’s Growth Potential
Buffett reduced Berkshire’s Amazon stake by about half a million shares in the third quarter, retaining 10 million shares. Ronald Josey, an analyst at Citi, appears to disagree with Buffett’s decision to trim the position.
Amazon’s shares have surged around 83% this year, and Josey believes the rally still has room to extend. He recently increased his price target on Amazon to $210, implying a 37% gain over the next 12 months.
Josey finds Amazon’s dominant position in America’s e-commerce industry encouraging. The company’s third-party retailers are tethered to Amazon, evident from the soaring ad sales. In addition to its standard take rate, Amazon garnered an extra $12.1 billion in ad payments from third-party merchants in the third quarter, 26% more than the previous year.
Amazon Web Services (AWS) remains a significant growth driver, recording resilient growth despite economic challenges. AWS revenue rose 12% year over year to $23 billion in the third quarter, within a global cloud services market that reached $484 billion in 2022 and is projected to expand by 14.1% annually through 2030.
Coca-Cola’s Appeal
Although not initially a significant holding, Coca-Cola now comprises over $23 billion of Berkshire Hathaway’s equity portfolio, positioning itself as the fourth-largest asset. Despite a decline of approximately 8% in 2023, Citi analyst Filippo Falorni anticipates a rebound for Coca-Cola in 2024. He recently elevated his price target on the stock to $67 per share, signaling a 14% gain over the coming year.
The primary attraction of Coca-Cola lies in its consistently increasing dividend payouts. In February, Coca-Cola raised its dividend for the 61st consecutive year.
Berkshire, with exactly 400 million Coca-Cola shares, is set to receive more than $736 million in dividends from Coca-Cola in 2024, assuming the company maintains its lengthy payout streak.
Concerns that the rising popularity of weight management drugs might dent soda sales have impacted Coca-Cola’s stock price. However, the fear seems exaggerated, given that North American case volume remained steady in the third quarter.
Timing Investment Decisions
Amazon, with its exceptional business divisions, presents an opportunity for substantial gains. Its dominant position in e-commerce and AWS’s cloud services leadership position Amazon advantageously. However, the stock trades at a high multiple of 94 times trailing free cash flow, posing a significant risk if earnings fail to surge in the coming years.
On the other hand, Coca-Cola, with its revered brand and pricing dominance, continues to defy the declining soda consumption trend. Despite concerns about currency effects, the company registered an 11% year-over-year increase in third-quarter revenue. With a current 3.1% yield, Coca-Cola’s shares hold appeal for long-term investors.