When billionaire investor Warren Buffett makes a move, investors take notice, with many of them mimicking his decisions and buying and selling the same stocks. He has generated massive wealth over the years due to his investing acumen and his long-term buy-and-hold strategy.

But that doesn't mean every stock in the Berkshire Hathaway portfolio has necessarily been a great market-beating investment. In many cases, Berkshire holds safe dividend stocks that can offer consistent payouts, long-term stability, and value preservation -- but not much in the way of great capital gains.

Thus, if you're looking at Buffett's stock purchases as ways to find the next great stock to own, you might be disappointed, as that's not necessarily his strategy or goal when making stock picks. In fact, one of his most beloved and favorite stocks has also made for a laggard investment when compared to the S&P 500.

Coca-Cola is a top holding and prototypical Buffett stock

Coca-Cola (NYSE: KO) is an iconic beverage brand with its logo known all over the world. Buffett loves the company's products, and for years, Coca-Cola has been one of Berkshire's top holdings. Today, it accounts for nearly 9% of the fund's total portfolio.

It has generated more than $40 billion in revenue in each of the past two years, and with strong profit margins in excess of 20%, it ticks off many of the things Buffett looks for when buying a stock.

But if you have been holding Coca-Cola stock for the past decade, you might be disappointed with its performance. While it generates consistent profits and the stock is a Dividend King, making it an ideal option for income investors, its total returns simply haven't been all that impressive.

Coca-Cola has consistently underperformed the S&P 500

An effective way of gauging a stock's returns is comparing it against the S&P 500. The broad index can make for a good, default option for investors, offering them a way to generate decent returns (it has averaged a long-run return of 9.7%) while keeping their overall risk low. If you don't expect that you can outperform it, then you're probably better off just holding the index.

Here's what Coca-Cola's stock returns look like when compared against the S&P 500 over the past 10 years.

Data source: YCharts.

In just three of the past 10 years, Coca-Cola stock has been able to outperform the market. And over the past decade, Coca-Cola's stock has risen by 67% in value, while the more diversified S&P 500 has generated gains in excess of 180%. If you include dividends, Coca-Cola's total returns rise to 130%, but investors still would have been better off with the index -- its total gains are still far higher at 240%.

Does this mean Coca-Cola stock is a bad buy?

Depending on your investing strategy, Coca-Cola may or may not be an optimal stock to hold. It's incredibly valuable for risk-averse investors who just want to collect a dividend and not worry about the markets. The big advantage it offers investors is stability. The one thing you may notice from Coca-Cola's returns over the past 10 years? Not once did the stock decline by double digits.

For investors who are nearing retirement and don't want to take chances with their savings, Coca-Cola can be an extremely valuable and worthwhile investment to hang on to. You might miss out on some gains by going with Coca-Cola, but given its stability, it can make for a safer option than the S&P 500, which will be more susceptible to market conditions.

Coca-Cola may not be a roaring growth stock with huge potential, but the business is still solid and can be counted on for consistently strong financials and recurring dividend income.

Should you invest $1,000 in Coca-Cola right now?

Before you buy stock in Coca-Cola, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Coca-Cola wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $792,725!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of August 22, 2024

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.

This Top Warren Buffett Stock Has Only Beaten the Market in 3 of the Past 10 Years was originally published by The Motley Fool