Is Coca-Cola Still the "Real Thing" For Stock Investors?
Companies / Investing 2013 Apr 01, 2013 - 01:20 PM GMTBy: Money_Morning
David Mamos writes: Suffice it to say, Coke has been a big part of our culture for over 100 years.
When I was growing up I wasn't shy about shaking a malfunctioning vending machine whenever my craving for an icy cold Coke kicked in.
But lately, have you noticed you are more likely to grab a Starbucks coffee for your caffeine fix?
Or maybe you are more inclined to pick up a sports or energy drink when you are on the go. Better yet, as you become more health conscious, it's a juice or a fruit smoothie that does the trick.
The good news is that the Coca-Cola Company (NYSE: KO) has "matured" right along with you and is trying to use its status as the most recognized brand in the world to deliver new products to its thirsty customers.
That's one of the reasons I'm so bullish about Coke these days. But it's not the only one...
Coca-Cola's Global Appeal
Putting aside Coca-Cola's variety of products for a moment, the company has such a wide global appeal that even if one region may be waning, another area is likely flourishing.
With roughly 80% of total sales outside the United States, Coca-Cola has the unique ability to spread risk across the entire globe - in all likelihood more so than any other company in the world.
Coca-Cola is also always on the lookout for growth opportunities in countries where its drinks aren't as prevalent as they may be in more developed nations.
In the last reported quarter, Coca-Cola's global sales volume rose by 3%, partly due to further advances into Russia and India, which saw growth of 19% and 32%, respectively. Globally, the two countries are showing increases in carbonated beverage consumption, which is why Coca-Cola is focusing more attention and diverting more capital there.
One place Coca-Cola has not fared well lately is China.
China's volume was down 4% in the fourth quarter after growing 10% in the year-ago quarter. However, the company said it believes that the slowdown in China's economy is primarily to blame for this downward trend.
Another area with continued economic concerns is Europe, where volumes declined 5% during the quarter and 1% for the year. Even still, with a 1% gain in sales volume in North America for the most recent quarter, it is plain to see that no one region controls the destiny of Coca-Cola.
Through shrewd marketing, investments, and good management of its currency exposure, Coca-Cola is the epitome of what Money Morning Chief Investment Strategist Keith Fitz-Gerald terms a "glocal."
Glocals are companies with global brands and a highly localized presence. They typically have fortress-like balance sheets, experienced management and, most importantly, huge percentages of their revenues coming fromglobal marketsgrowing at 3-5 times the speed of our own.
Changing Tastes
Coca-Cola has now realized that it has to appeal to a more diet-conscious public, since Coke and other sugary drinks are being banned by the likes of New York City's Mayor Michael Bloomberg and First Lady Michelle Obama.
And although it's still loaded with high fructose corn syrup, Coca-Cola's Powerade and its appeal as a sports drink was the driving force behind the 1% sales volume increase in North America.
In fact, Coca-Cola reported an 8% surge in non-carbonated beverages as sales of carbonated beverages dropped. Other products like Honest Tea (found in health food stores) and Simply Orange (advertised as "100% pure") are quickly gaining market share.
Coca-Cola completed its purchase of Honest Tea in 2011, and the company continues to purchase smaller niche-beverage companies.
For instance, as of the previous quarter, Coca-Cola owns 90% of Innocent Drinks. Although not well known in America, the beverage company is extremely popular in the U.K. and Europe. Innocent Drinks primarily makes bottled smoothies, but does it in a very eco-friendly way, using only select farm ingredients in its blends.
Coca-Cola already owns a similar line of products under the Odwalla brand in the U.S., and the combination of the two should streamline quite well.
Also, realizing that its sugary carbonated drinks need a bit of an overhaul, Coca-Cola is changing Sprite's ingredients in the U.K. as well. The company will now replace some of the sugar in Sprite with the sweetener Stevia, which will result in 30% fewer calories for the soda.
Unlike other sweeteners, Stevia is a naturally derived, sweet-tasting herb that can be crystallized and turned into powder for consumption, and may also be used in liquid form. If Coke's attempts to lower calories with something that is plant-derived prove successful, we may see this type of change in other beverages as well.
Of course, that doesn't mean that Coke and other carbonated colas won't be the company's biggest sellers.
After all, the West may be on a health kick whose tastes are going through a transition, but China and India still have billions of people that aren't exposed every day to a bubbly Coke.
Once again, it is another example of how Coca-Cola is able to spread risk globally by having such varied products tailored to what the locals actually want.
"Have a Coke and a Smile"
Coca-Cola has also recently announced a generous increase in its dividend. The quarterly dividend increased from 25.5 cents to 28 cents per share. The new dividend will yield approximately 2.8% annually. That marks an astounding 51 consecutive years that Coca-Cola has increased its dividend.
Meanwhile, Coca-Cola's free cash flow totaled over $7.8 billion during 2012. The company's solid cash position has allowed it to return value to shareholders through share buybacks. In all, the company repurchased over $3.1 billion in shares in 2012 and plans to repurchase $3 billion to $3.5 billion in shares during 2013.
Source: TD Ameritrade
But let's take it a step further by looking at a chart of the stock's performance over the last four years.
What you'll see is that Coke is in a solid uptrend, falling neatly between the upper and lower trend lines. It's marked by a series of higher highs and higher lows.
Those trend lines are about $4 apart, so with proper management of your position you won't stand to lose much if the markets decide to head south.
But the fact is, Coca-Cola is what it has always been - a value play for those seeking long-term appreciation with a nice yield.
So, just as our grandparents enjoyed drinking Coke long ago, I think our grandchildren will appreciate Coke even more if they were to inherit a few shares of Coca-Cola as well.
For these reasons I am a BUYER of Coca-Cola.
About the Author: David Mamos brings nearly 15 years of analytical experience to the table, with a background ranging from big-picture fundamental analysis to highly technical trading decisions. He began his career working as a financial advisor with Royal Alliance in 2001 and helped clients with portfolio management as well as buy-sell decisions before transitioning to the development, implementation and execution of trading strategies for aggressive investors.
Source :http://moneymorning.com/2013/04/1/buy-sell-or-hold-is-coca-cola-still-the-real-thing-for-investors/
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