Warren Buffett has a long history of successful investing. The legendary investor is known for his adherence to value investing principles, which involve looking for companies with solid fundamentals, competitive advantages, and wide economic moats.
These companies are often leaders in their industries, which reduces the relative risk associated with the investment. Moreover, a few of them also offer solid dividends. Therefore, adopting a strategy of investing in stocks within Berkshire Hathaway's (BRK.A) (BRK.B) portfolio, as curated by Buffett and his team, could prove to be a prudent approach for long-term wealth creation.
While Warren Buffett holds significant stakes in quite a few companies, including Apple (AAPL), I’ll focus here on two Buffett stocks analysts are particularly bullish about. Let's take a look.
Coca-Cola
Coca-Cola (KO) stock is Buffett’s fourth largest holding, as per the latest 13F filing. The stock accounts for 7.1% of Berkshire’s holdings. Coca-Cola benefits from strong underlying demand and the company’s solid execution. What stands out is the company’s pricing power that supports organic growth and cushions its earnings.
Despite macro headwinds, Coca-Cola achieved an impressive 11% organic revenue growth in the third quarter. This was driven by positive volume growth and higher pricing. The beverage giant expanded volume and value share in both at-home and away-from-home channels during the quarter. Additionally, its comparable gross margin increased by approximately 130 basis points for the period, reflecting higher organic sales and benefits from bottler refranchising.
Encouragingly, Coca-Cola raised its fiscal 2023 revenue and earnings guidance, projecting organic revenue growth of 10-11%, up from the earlier guidance of 8-9%. The company plans to invest further in marketing and digital initiatives to enhance the relevance of its brands to consumers. It is also prioritizing its eB2B (electronic business-to-business) platforms for better product customization, pricing optimization, and inventory management.
The company’s strong business momentum and robust balance sheet provide financial flexibility for continued reinvestment in the business and returning capital to shareholders. As a dividend king, Coca-Cola has increased its annual dividend for 61 consecutive years. The combination of steady growth, consistent dividend increases, and share buybacks positions Coca-Cola as an attractive long-term investment.
Analysts seem to concur, with the majority recommending a “Strong Buy" on KO. Among the 15 analysts covering the stock, 11 advocate a “Strong Buy,” one suggests a “Moderate Buy,” and three advise a “Hold.” Furthermore, the average price target of $64.80 implies approximately 8.4% upside potential from current levels.
Amazon
Amazon.com (AMZN) stock constitutes a small fraction of Buffet’s portfolio. However, Wall Street is quite optimistic about this e-commerce and cloud computing giant.
Despite facing macroeconomic challenges, Amazon's stock has racked up substantial gains this year, primarily propelled by the strength of its cloud computing arm, Amazon Web Services (AWS). Moreover, its focus on improving profitability, investments in artificial intelligence (AI), and sustained momentum in the advertising business further supported the rally in its share price.
AWS stands out as the key catalyst behind Amazon’s revenue and profitability. The segment’s revenue reached $23.1 billion in the third quarter, reflecting a 12% year-over-year increase. The ongoing migration of new workloads to the cloud contributes to the vertical’s growth. Its strong customer pipeline, improving cost structure, and AI-driven capabilities are expected to bolster AWS’ financial performance.
As for the advertising business, the segment holds significant potential for the company. The advertising division has consistently demonstrated over 20% revenue growth in recent quarters, and has been the key driver for Amazon’s free cash flow. In the third quarter, advertising revenues surged by over 25% to $12.1 billion. Moreover, the segment’s top line also improved sequentially.
Overall, the combined strength of Amazon’s cloud and advertising businesses, its leadership in the e-commerce sector, and a focus on improving profitability through cost reduction are expected to provide a solid foundation for the company’s financial performance.
Analysts echo this sentiment with a predominantly bullish outlook on the stock. Among the 40 analysts covering Amazon, 36 recommend a “Strong Buy,” three suggest a “Moderate Buy,” and one advises a "Hold." The average price target among analysts is $174.03, indicating approximately 16.7% upside potential from current levels.
