Is buying Diageo shares like Warren Buffett’s 1980s Coca-Cola bet?

Warren Buffett’s initial investment in Coca-Cola is legendary. Following a wider stock market meltdown in the late 1980s, the billionaire investor snapped up shares in the beverage maker at a discount, and has since seen his investment grow into one of Berkshire Hathaway’s most successful.

Beyond the share price steadily climbing as Coca-Cola continued to dominate globally within the soft drinks market, the company has also been hiking its dividends every year. So much so, that Buffett’s firm now earns a yield of over 60% every year!

With that in mind, Diageo (LSE:DGE) shares have gotten quite interesting of late.

Like Coca-Cola in the late 80s, the global beverages business is now trading at dirt cheap valuations following a substantial share price decline. But despite the pessimism from investors, there are some signs that this FTSE 100 giant could be a massive bargain in 2026.

Could we be looking at a similar Buffett-style Coca-Cola investment opportunity?

Ripe for a turnaround

Over the last few years, Diageo’s faced both internal and external challenges. Wider economic headwinds haven’t helped, but a lot of blame can also be placed on poor strategic direction. This is something the new CEO, Sir Dave Lewis, is aiming to fix.

With a reputation for introducing disciplined cost-cutting and aggressive restructuring of struggling businesses, investors are hopeful that Lewis will be able to fix most of the internal problems.

We can already see his portfolio optimisation strategy underway, given that the group’s struggling Chinese brands are currently under review for a potential divestment. At the same time, efforts are being made to reorganise the bottling operations as part of a wider supply chain efficiency boost to offset the impact of US tariffs.

Assuming these efforts are successful, the firm could soon see a significant improvement in free cash flow generation, alongside a potential cash windfall from divestments to shore up the balance sheet.

If everything goes according to plan, Diageo could emerge as a leaner operation while still owning some of the most popular and iconic brands in the alcoholic beverages space, including Guinness, Johnnie Walker, and Smirnoff, among others.

What could go wrong?

Throughout his investing career, Buffett built a reputation for spotting hidden value in companies that most investors were overlooking. Diageo certainly seems to fit into that category, given its cheap valuation today.

However, investing in turnaround stocks isn’t without its risks. And even Buffett made a few blunders over the years.

The challenge for Diageo’s new management is in execution. Lewis has a strong track record of fixing problems in consumer staple companies like Tesco and Unilever. But his experience within the beverages industry is pretty limited. And that could lead to accidental missteps that prolong or even worsen Diageo’s longer-term recovery.

What’s more, he also has to tackle a growing secular headwind from younger generations. People are generally drinking less. And while some brands continue to outperform, this headwind could prove problematic if consumer preferences continue to shift away from alcoholic drinks.

With all that said, is this a stock worth considering in 2026?

There’s no denying that Diageo shares carry notable risk. But with investors setting the bar pretty low and a viable road to recovery seemingly in sight, this Buffett-style stock might indeed be worth a closer look.

The post Is buying Diageo shares like Warren Buffett’s 1980s Coca-Cola bet? appeared first on The Motley Fool UK.

More reading

• Down 26%, where’s Diageo’s share price headed?
• I asked ChatGPT for the FTSE 100’s once-in-a-decade opportunities
• A simple 3-step plan for targeting a £1,000 monthly second income
• How much might £1,000 invested in Diageo shares pay out in dividends by 2040?
• Diageo shares have fallen a long way — is the pain over?

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo Plc, Tesco Plc, and Unilever. 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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