For over 50 years, Berkshire Hathaway has been Warren Buffett’s investment vehicle, and in the first quarter, the legendary investor was busy purchasing shares of several firms.
Apple (AAPL 2.01%) and Coca-Cola (KO 0.74%) are two excellent companies worth investing in during this bear market, according to Berkshire’s quarterly report. Both have strong brands that can weather a tough economy and provide long-term returns.
Iconic brands will survive hard times
If you’re going to piggyback on the greatest investor of all time, why not start with his biggest gamble? Berkshire owned 890 million shares of Apple that was valued at $155 billion as of March 31. It’s one of Buffett’s largest investments ever.
Hard not to notice the value underpinning Apple. The stock has a reasonable price-to-earnings ratio of 21.5. Given that over the last century, the typical company has traded at around 16 times earnings, Apple isn’t too expensive. Buffett or one of his investing deputies clearly thinks the stock is a good value right now, as Berkshire Hathaway increased its Apple stake in the fourth quarter.
Apple’s new proprietary M1 processors have hit the mark with its line of Macs and iPads. In fact, in a quarter when worldwide PC sales decreased overall, Apple was one of the few companies to increase market share in worldwide PC shipments, surpassing Lenovo and HP.
Apple generates a large sum of money from operations, which is used to fund new product development and technological advancements as well as increasing dividends and share repurchases. In the last five years, Apple has spent approximately $500 billion on capital returns to shareholders. The continued stream of revenue generated by Apple from selling products that people like to utilize every day is a compelling reason to purchase the stock in a bear market.
Coca-Cola has become a staple in many people’s homes for decades
Coca-Cola stock has been a mainstay in Warren Buffett’s portfolio for several decades. Coca-Cola has done an excellent job of keeping its market leadership in non-alcoholic beverages. Millions, if not billions, of people throughout the world drink one of Coca-Cola’s line of products on a daily basis.
Coca-Cola’s earning of $38.6 billion in 2021 is a testament to its success. That was up 17% from the $33 billion it earned in 2020. Coca-Cola has formed a number of unique partnerships with off-site channels such as restaurants, theme parks, and movie theaters as a result of which its revenue has been negatively impacted by the pandemic. The situation is now playing out in reverse. As people become more comfortable leaving their homes due to COVID-19, Coca-Cola profits.
By reducing waste at its operations, Coca-Cola has increased its operating profit margin from 22.4% in 2012 to 28.6% in 2021. That margin improvement is certain to play a significant part in investor optimism as higher inflation strains profit margins across all sectors.
Furthermore, in a bear market, investors place a higher premium on companies with long-term profits. Given that people have for decades developed the habit of drinking one of Coca-Cola’s beverages following their employment or income decrease, it is doubtful that they would abandon the practice. For those reasons, Coca-Cola is at the top of my Warren Buffett investments to buy during a bear market.