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Billionaire investor Warren Buffett’s original bet on Coca-Cola in 1988 has turned into one of the greatest value investments in stock market history.
Buffett bought in shortly after the 1987 market crash, when Coca-Cola shares were unloved and cheap. Today, thanks to decades of relentless dividend growth, Berkshire Hathaway earns close to a 60% yield on that original investment.
But in 2026 there’s another drinks giant that could be in a similar position to Coca-Cola in the 1980s. So is Diageo (LSE:DGE) getting ready to deliver something similar?
Spotting the parallels
Buffett didn’t buy Coca-Cola because it was flashy. He bought it because a high-quality business had become temporarily unloved as investor sentiment sank hard.
Diageo finds itself in a strikingly similar position today. The shares have been hammered after a dividend cut and a string of disappointing results.
Yet the underlying business, spirits brands like Johnnie Walker, Smirnoff, and Guinness, remains genuinely world-class. That’s exactly the kind of gap between price and quality that Buffett has spent his career hunting for.
To be fair, the negative sentiment surrounding Diageo isn’t entirely unfounded, with growth proving elusive in recent years. That’s why new CEO Sir Dave Lewis was brought in earlier this year to force through change. And so far, he’s moved quite fast.
As previously mentioned, dividends have already been slashed to free up some cash flow. But on top of this, non-core assets are being divested, management layers are getting stripped out, and a growing list of workers are sadly being let go.
It’s never fun to hear about people losing their jobs, but aggressive actions like these are exactly what Diageo might need to right the ship. And it’s also what gave Lewis his nickname ‘Drastic Dave’.
So is the turnaround actually working?
What the latest results reveal
We’ll get a clearer picture of progress later this month but, so far, there are some genuine green shoots of progress.
In its latest third quarter results, Europe grew organic sales 8.8%, Africa surged 17.1%, and Latin America jumped 16.2%. Guinness continues growing at a double-digit pace in several markets, proving the brand strength Buffett-style investors look for hasn’t disappeared.
The real question though, is what’s happening in North America. This region makes up almost 40% of the top-line revenue and as things stand, it continues to be a market in decline for Diageo.
With consumers opting for cheaper brand alternatives for spirits like tequila, the company’s struggling to maintain a competitive position. To be fair, Lewis has already acknowledged this explicitly. But it’s still too early to tell whether his new strategy will be successful in this key market.
So where does that leave investors today?
The bottom line
Buffett didn’t buy Coca-Cola expecting an overnight turnaround. He bought a great brand at a discounted price and let time do the heavy lifting.
The story surrounding Diageo’s likely to be something similar. North America still needs to prove it can recover, and the balance sheet needs some mending as well.
But with a credible strategy now in motion and a full-year update due on 6 August, I’ll be keeping a very close eye on this FTSE 100 enterprise. And it’s not the only one I’m watching like a hawk…
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Zaven Boyrazian does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
