Warren Buffett, CEO of Berkshire Hathaway Inc. (NYSE: BRK.A, NYSE: BRK.B) and arguably the most successful investor of all time, has time and time again stated that his favourite holding period for a company is ?forever?. That is, he strives to find a quality company trading at a reasonable price and hold onto it through the good times and the bad, focusing on the belief that the business will be much bigger in 5, 10 or even 100 years? time, regardless of any temporary potholes it may run into.
He once described beverage behemoth, The Coca-Cola Company (NYSE: KO),…
To keep reading, enter your email address or login below.
Warren Buffett, CEO of Berkshire Hathaway Inc. (NYSE: BRK.A, NYSE: BRK.B) and arguably the most successful investor of all time, has time and time again stated that his favourite holding period for a company is “forever”. That is, he strives to find a quality company trading at a reasonable price and hold onto it through the good times and the bad, focusing on the belief that the business will be much bigger in 5, 10 or even 100 years’ time, regardless of any temporary potholes it may run into.
He once described beverage behemoth, The Coca-Cola Company (NYSE: KO), as one of these ‘forever’ brands. In fact, since buying his first stake in the company in 1988, he has never sold a single share and says he never will. He said, “I’m the kind of guy who likes to bet on sure things… I like wonderful brands. If you take care of a great brand, its forever.” He also added: “No business has ever failed with happy customers”.
The Coca-Cola Company is a parent of Coca-Cola Amatil Ltd (ASX: CCL) (“CCA”), which bottles and distributes the corporation’s products throughout Australia, New Zealand, Indonesia, Papua New Guinea, Fiji and Samoa. Unfortunately, CCA hasn’t performed too well over the last year with shares down almost 40% since last May.
Of course, shareholders have every reason to be upset with the recent performance. Profits have been right down due to pricing pressures from competitors and supermarket giants Woolworths Limited (ASX: WOW) and Coles, owned by Wesfarmers Ltd (ASX: WES). The high Australian dollar has also heavily impacted its SPC Ardmona cannery business. The most recent drop in share price came after new CEO Alison Watkins warned that profit would once again be down for the first half of operations.
Although its recent performance has been dissatisfying (and its share price plummet has been largely justified), investors should be seeing this as one of the temporary potholes in a quality company’s long and successful history.
The problems the business is facing appear to be short-term in nature
First of all, the pricing war with rival, Schweppes, cannot continue forever. Schweppes has aggressively reduced its prices to gain market share and improve volumes, but its lower prices are also impacting on its own margins. They will soon be forced to increase prices which will lessen the pressure on Coca-Cola Amatil.
Secondly, although new business risks are always introduced with new management, a new CEO can also bring about much-needed changes. Alison Watkins, the former boss of Graincorp Ltd (ASX: GNC), took over the position of CEO last month and has undertaken a strategic review which will explore ways to reduce costs and improve productivity. Some analysts suggest costs could be reduced by up to $100 million which would greatly improve profitability.
Thirdly, investors have been concerned about the company’s prospects in Indonesia. The region has long been considered as a huge opportunity for growth for the company, and while volumes in the area have been improving, they have been offset by the depreciation of the Indonesian Rupiah as well as increasing wages. However, the region still poses an incredible opportunity for the company, particularly given its enormous population.
Foolish Bottom Line
The stock is currently trading at a level it has not traded at since 2009. There are certainly concerns that need to be addressed by the business, but its low price makes now the perfect opportunity to take advantage of a temporary dip in investor confidence. Further, the investment prospect is made so much more appealing by its stellar 5.4% dividend yield.
Get our top dividend stock for 2014 - FREE!
Interested in our #1 dividend-paying stock? Discover The Motley Fool's favourite income idea for 2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2014."
Motley Fool contributor Ryan Newman owns shares in Coca-Cola Amatil Ltd and Berkshire Hathaway Inc (BRK.B).