Why some expensive growth shares will keep going higher - the real secret to Coca Cola's success…

by , 12 May 2016
Why some expensive growth shares will keep going higher - the real secret to Coca Cola's success…
In the five years before Warren Buffett bought Coca Cola, its share price rose an average 18% per year even during the Great Depression.

When Buffett Bought Coca Cola, he paid a massive 30% premium for its earnings and a 50% premium for its cash flow compared to its sector's average.

But Buffett simply didn't care. In fact, his investment in coke grew nearly 16 times over!

So why did Buffett risk more than $1 billion of his money and invest in a company that seemed to be massively overvalued?

Read on and I'll explain exactly why Coca Cola was such a successful investment for Warren Buffett and I'll show you one stock that could emulate Coca Cola success…
 
Revealed: The REAL secret to Coca Cola’s long-term success
 
In his 2007 letter to shareholders, Warren Buffett said a truly great business must have an enduring brand value. That’s because an enduring brand value protects your investment capital and generates great returns.
 
Companies like Coca Cola, GEICO and Costco possess this powerful enduring brand value.
 
But what does an enduring brand value mean for a company’s share price?
1.    It keeps the company safe from competitors - Coca Cola’s global reach expands in more than 200 countries at a rate of 1.9 billion servings a day.  This had made Coca Cola’s market share of carbonated beverages worldwide around 48%, while its closest competitor, Pepsi has a market share of only 20%. 
 
2.    It has been on the market for years and its products are #1 or #2 in its field - Coca Cola is the No. 1 provider of sparkling beverages, ready-to-drink coffees, and juices and juice drinks, employing around 700,000 people.  Not to mention, it held the No. 1 spot on Interbrand's annual ranking of global brands for 13 consecutive years, before being displaced by Apple in 2013.
 
What’s more, thanks to its impeccable global growth, Coco Cola hiked its dividend by a yearly average of 9% over the past decade.
 
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You don’t have to look too far to uncover a “Buffett-style” stock  
 
As I explained earlier, Buffett always buys a company that has an enduring brand value. And there are a few listed right here, in South Africa.
 
A prime example is Famous Brands (JSE: FBR). In 1994, FBR listed on the JSE at a price of R1.65 per share with a market cap of just R41 million.
 
Over two decades, it has expanded remarkably and now has a market cap in excess of R11 billion with its share price over R110 now. This allowed Famous Brands to seal its position on the JSE’s top 100 companies list.
 
The group is Africa’s leading branded food services franchisor with 19 restaurant brands in its portfolio, a network of 2,500 restaurants in 15 countries – including international exposure in the UK, India, Egypt and the United Arab Emirates – proving it’s a dominant business in its industry.
 
Why this “expensive” South African company will keep getting more expensive
 
I believe Buffett would regard FBR as a buy and hold forever stock. Not just because of its enduring brand value, but also for its:
1.    Diverse portfolio of popular food brands including Steers, Tashas, Europa and Mugg & Bean just to name a few of its many franchises. FBR massive portfolio ensures it has full control of the market share for fast-food and restaurants. 
 
2.    It’s definitely positioned #1 or #2 in terms of its product range as Africa’s leading brand food services franchisor with over 2,500 restaurants in 15 countries.
 
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And there’s more that fits Buffett’s criteria:
  • 14th consecutive year of record turnover and profits – 661% increase in EPS since 2005.
  • A 400% increase in dividends since 2008
  • Less than five times its sector average debt
  • An over 7,000% share price growth since listing on the JSE 

 
FBR is just one example of a company that possesses an enduring brand value. There are many more examples: Financial services giant Discovery and retail specialist, Mr Price.
 
Always Remember,
Knowledge brings you wealth,


Joshua Benton
Editor, Stock of the Month


Why some expensive growth shares will keep going higher - the real secret to Coca Cola's success…
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