Warren Buffett has built an impressive investment track record over the decades, first running an investment partnership before transforming Berkshire Hathaway‘s (NYSE: BRK.A) (NYSE: BRK.B) from a sleepy textile company into a conglomerate with a wide range of investments and subsidiaries.
Buffett has become a multibillionaire, but you can start small. You may not generate the same wealth, but you can increase your net worth over time.
You can track Berkshire Hathaway’s equity holdings through public filings and follow that up with your own research. Two Berkshire holdings, Coca-Cola (NYSE: KO) and Moody’s (NYSE: MCO), still offer investors nice return potential.
1. Coca-Cola
Coca-Cola, founded in the late 1800s, sells beverages in more than 200 countries. While it seems unlikely that the company can grow quickly at this stage, the stock appeals to dividend investors.
But it’s not a stodgy company with limited growth potential. Coca-Cola’s first-quarter operating income, adjusted for certain items like foreign currency translations, grew 13%. This profit growth helps the business generate a lot of free cash flow (FCF). Last year’s FCF, which is what’s left of cash flow after capital spending, was $9.7 billion, easily covering the $8 billion in dividends.
Importantly, Coca-Cola isn’t content to merely maintain the same payout. Rather, it has increased it for 62 straight years, making the stock a Dividend King. This includes an increase of more than 5% earlier this year. The shares have a 3.1% dividend yield, much higher than the S&P 500‘s 1.3%.
2. Moody’s
Moody’s essentially operates two strong businesses. There’s the venerable ratings business, which has a large market share. Its only major competitors are S&P Global and Fitch Ratings. Moody’s other business provides research and risk management services to customers in financial services and the corporate and public sectors.
Both businesses continue to perform well. The ratings business’s first-quarter revenue rose an impressive 35% to $987 million. While the ratings business’ results can fluctuate due to factors affecting bond issuance, its market position and limited competition mean the unit has good long-term prospects.
The analytics business has reported rising revenue for 65 straight quarters. In the latest period, the segment had a gain of more than 8%.
The company’s quarterly diluted earnings per share (EPS) under generally accepted accounting principles (GAAP) was $3.15, up 16%. Management expects to earn $9.55 to $10.15 a share for the year, representing 9% to 16% growth.
Moody’s shares trade at a premium compared to the overall market. The stock has a price-to-earnings (P/E) ratio of more than 48 while the S&P 500 trades at a 29 multiple. That’s certainly not cheap, but you get two strong businesses with bright long-term prospects. For long-term investors, that seems worth paying a higher valuation.
Coca-Cola and Moody’s have different investing rationales. The former offers income while the latter has good growth prospects. You can own both stocks by starting with small sums and adding to your positions over time. One way to do that is dollar-cost averaging, which involves investing the same amount at regular intervals.
Before you know it, you’ll have meaningful positions in Coca-Cola and Moody’s.
Should you invest $1,000 in Coca-Cola right now?
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Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Moody’s, and S&P Global. The Motley Fool has a disclosure policy.
The Best Warren Buffett Stocks to Buy With $5,000 Right Now was originally published by The Motley Fool
