Through the first nine months of 2024, Warren Buffett’s Berkshire Hathaway significantly reduced its stock holdings, selling off a staggering $133 billion worth of equities. This included trimming its substantial Apple position and divesting nearly a quarter of its Bank of America shares. As of Q3 2024, Apple, American Express (NYSE: AXP), Bank of America, and Coca-Cola (NYSE: KO) constituted 70% of Berkshire’s $271 billion stock portfolio. Buffett’s move to raise cash comes amidst a period where the S&P 500 is trading at a historically high price-to-earnings ratio of 30.
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However, analyzing the stocks Buffett has chosen to retain provides valuable insights into his investment philosophy. Two long-term holdings, Coca-Cola and American Express, remain prominent fixtures in Berkshire’s portfolio, signaling Buffett’s confidence in their competitive advantages and future growth potential. This article delves into the reasons why these two companies continue to be core components of Buffett’s investment strategy.
Coca-Cola: A Timeless Beverage Giant
Warren Buffett’s investment approach often centers on acquiring leading consumer brands with durable competitive advantages. His 1988 investment in Coca-Cola exemplifies this strategy. Following the 1987 Black Monday market crash, Coca-Cola’s stock price plummeted. However, recognizing the company’s double-digit earnings growth and significant international expansion opportunities, Buffett seized the moment and invested a substantial portion of Berkshire’s equity in Coca-Cola when it traded at a price-to-earnings ratio of around 16.
Buffett has held onto his Coca-Cola shares, which, after stock splits, now total 400 million shares worth approximately $25 billion as of Q3 2024, generating $776 million in annual dividends. While Coca-Cola’s growth trajectory has moderated compared to its earlier years, the company maintains its market share dominance and anticipates continued earnings growth. Despite a recent dip in unit case volume due to weakened consumer spending, Coca-Cola’s management projects long-term revenue growth slightly exceeding the global beverage industry’s historical 4% rate.
With a current price-to-earnings ratio of 21 based on 2025 earnings estimates and a dividend yield of 3.14%, Coca-Cola offers income investors a reliable source of passive income. While its growth might not significantly outpace the S&P 500, its robust brand and consistent sales performance solidify its position as a stable investment.
American Express: The Power of Brand Loyalty
American Express, another cornerstone of Berkshire Hathaway’s portfolio, has been a long-term holding for over 30 years. As of Q3 2024, Berkshire held 151 million shares. Buffett’s steadfast ownership in American Express underscores his belief in the company’s enduring competitive moat, built on exceptional customer service and a premium card membership model.
American Express’s impressive financial performance – from earning $12.5 million in 1964 to $9.9 billion in the past year – demonstrates the strength of its brand and business model. The company’s net card fees, reaching nearly $2.2 billion in Q3 2024 with an 18% year-over-year increase, highlight its recurring revenue stream, which fuels investments in member benefits and drives customer acquisition and retention.
American Express cardholders’ higher average spending compared to other card brands contributes to the company’s robust transaction volume growth. Despite recent consumer spending slowdowns, billed business expanded by 6% year-over-year. With projected 2024 earnings growth of 25% driven by increasing card fees, low delinquency rates, and consistent new member growth, American Express maintains a positive outlook.
Trading at a price-to-earnings ratio of 20 based on 2025 earnings estimates, slightly above its 10-year average of 18, American Express’s valuation reflects analysts’ expectations of 14% annualized long-term earnings growth, aligning with management’s targets. While economic downturns could impact performance, Buffett’s continued confidence in American Express indicates a long-term perspective on its value appreciation.
Conclusion: Enduring Value in a Volatile Market
Warren Buffett’s decision to retain substantial positions in Coca-Cola and American Express amidst a widespread sell-off reveals his enduring faith in companies with strong brands, sustainable competitive advantages, and consistent profitability. While these companies may not exhibit explosive growth, their resilience and ability to generate steady returns in various market conditions make them valuable long-term investments in Buffett’s portfolio. Their continued presence in Berkshire Hathaway’s holdings offers a compelling case study for investors seeking stability and long-term value creation.
