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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?
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.
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.