A rare thing’s just happened to Warren Buffett and Berkshire Hathaway!

At the end of the year, Warren Buffett will stand down as chief executive of Berkshire Hathaway. Along with the late Charlie Munger, he’s largely responsible for the creation of a $1trn behemoth. And over the past 60 years, his pithy quotes and legendary insights have helped inspire a legion of followers.

Falling out of favour

But this week, something unusual happened. On 27 October, KBW downgraded Berkshire Hathaway to Underperform. Although the firm’s analyst, Meyer Shields, paid tribute to the American billionaire saying that he had an “unrivalled reputation”, he warned that his departure will “probably deter investors… once they can no longer rely” on his presence.

But that’s not all. Other reasons given for the downgrade included lower car insurance margins, uncertainty over tariffs, and fewer clean energy tax credits.

Lower interest rates were also mentioned. That’s because, at 30 June, Berkshire Hathaway had $344bn of cash and cash equivalents (US Treasury bills) on its balance sheet. Some have questioned the decision to swap equities for cash. But Buffett has sought to reassure shareholders by telling them that it shouldn’t be interpreted as a sign that he believes a stock market crash is coming.

Although this huge stash is generating a modest return, it will decline if interest rates fall further. And the opportunity cost of holding so much cash is high. Since announcing his departure on 3 May, the S&P 500’s risen 20% compared to an 11% fall for Buffett’s investment vehicle. Had it deployed $344bn of cash in a tracker fund over this period, it would have gained $68.8bn.

A lesson for us all

However, Buffett has repeatedly confirmed his commitment to equities. Indeed, under the American billionaire’s stewardship, Berkshire Hathaway has established a reputation for holding investments for a very long time. For example, he once described The Coca-Cola Company as a “forever stock”.

Those of us who prefer to invest in UK stocks could follow suit by considering Coca-Cola HBC (LSE:CCH). It holds the exclusive bottling rights in 28 European and African countries for the group’s soft drinks, including Coke, Sprite, and Fanta.

Analysts are expecting earnings per share of €2.63 (£2.31 at current exchange rates) in 2025. And they are forecasting a rise of 45% to €3.82 (£3.36) by 2029. This gives a forward price-to-earnings ratio of just 10.3, which makes the shares look very cheap. This is despite the group’s share price rising 90% over the past five years.

Pros and cons

But its dividend isn’t overly generous. Based on amounts paid over the past 12 months, the stock’s yielding 2.6%. And given the popularity of its best-selling drinks, there must be some doubt as to whether it can grow as analysts expect. Conventional wisdom is that growth will slow over time. Remember, the Coke brand’s been around since 1886.

However, largely due to its attractive valuation, defensive characteristics, and impressive track record of growth, I think Coca-Cola HBC is a stock to consider.

Despite this week’s downgrade for Berkshire Hathaway, as Warren Buffett’s career comes to an end, I reckon he deserves to sit back and relax, pour himself a Cherry Coke (his favourite tipple) and reflect with pride that he’s probably the most successful investor of all time.

The post A rare thing’s just happened to Warren Buffett and Berkshire Hathaway! appeared first on The Motley Fool UK.

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James Beard has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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