For fans of Berkshire Hathaway, its quarterly regulatory filings with the Securities and Exchange Commission are almost required reading for insights into its investment portfolio. The legendary Warren Buffett has led the company for decades although he now has some help with the investing decisions.
Of course, Buffett doesn't have a perfect investing record. That's why it's important to perform your own analysis. And when scanning through his holdings, two compelling opportunities arise: Coca-Cola (KO -0.41%) and Moody's (MCO 0.36%), albeit for different reasons.
Let's uncover why these two longtime Berkshire Hathaway holdings remain attractive.
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1. Coca-Cola
Coca-Cola primarily sells soda around the world under its namesake brand, along with others such as Sprite, and Fanta. While soda accounted for most of the company's volume -- 69% last year -- the company also sells water, juice, and plant-based beverages. Given consumers' shift toward healthier diets, that's fortunate.
Formed in the late 1800s, Coca-Cola sells its products in more than 200 countries. That likely means its fast growth days have passed. Still, it continues to grow sales and profits. Adjusted revenue, which removes items like foreign currency exchange translations and acquisitions/divestitures, grew 11%, driving operating income 13% higher.
The revenue increase was driven by price increases. But this didn't stop Coca-Cola from gaining market share, indicating the power and appeal of the brands.
If you're an investor seeking dividends, Coca-Cola could be an ideal choice. The company's profitability has led to a lot of free cash flow (FCF) generation. Last year's FCF was $9.7 billion, and management used a large chunk to pay dividends.
The board of directors raised the quarterly dividend by over 5% earlier this year. After increasing dividends annually for 62 straight years, the stock is part of the Dividend Kings. Coca-Cola's stock has a 3.1% dividend yield, more than twice the S&P 500's 1.3%.
2. Moody's
Moody's consists of two strong, well-positioned businesses. It operates a ratings business that analyzes the credit quality of various bond issuers such as corporations and governments. It has a strong market share, with S&P Global and Fitch Ratings as the major competitors. There's also the analytics business that uses data to analyze risk.
Both businesses continue to do well. The ratings business saw an impressive 35% revenue increase, while analytics experienced 8% growth. Moody's adjusted diluted earnings per share (EPS) grew 13%. Management expects this year's adjusted EPS to increase 5% to 11%.
Moody's shares don't trade at a cheap valuation. The stock has a price-to-earnings (P/E) ratio of 44 compared to 27 for the S&P 500. But when looking at the company's strong businesses, including the ratings' major market share, I think it's worth paying a higher valuation.
Coca-Cola and Moody's both have strong brands. Their attraction as an investment depends on your goals. If you're looking to buy a dividend-paying stock, Coca-Cola, with its high cash flow and commitment to increasing payouts, fits the bill. Moody's ratings business has some cyclicality, but with limited competition, its long-term prospects look bright, and the analytics business has become a force with steady demand for its products.
An investment in Coca-Cola and Moody's undoubtedly requires patience. But as Warren Buffett has taught us, that's not only a virtue, it's a way to grow your wealth.
