Thursday, January 12, 2012

Coca Cola (KO) 2012 Review

Coca Cola (KO) is the world’s largest beverage company marketing through a network of company owned and independent bottlers over 500 nonalcoholic beverages worldwide including Coca Cola, Sprite, Barq’s, Mr. Pibb, Xtra, Fanta, Fresca, Dasani, Evian, Danone, Powerade and Minute Maid.

The company has grown profits and dividends 8-10% for the past 10 years earning a 27-30% return on equity. We expect the company to continue to do well as a result of:

(1) its incomparable portfolio of sparkling and still beverages as well as juices,

(2) the operating synergies resulting from the recent acquisition of Coca Cola Enterprises,

(3) management aggressive effort to improve productivity,

(4) geographic expansion especially in emerging market countries [Russia, Brazil, China].


(1) it is in a highly competitive industry,

(2) its sensitivity to volatile commodity prices,

(3) its international operations expose it to the risks of currency fluctuations,

(4) the increased consumer preference for ‘healthy’ foods could negatively impact its carbonated beverage products.

KO is rated A++ by Value Line, has a 31% debt to equity ratio and its stock yields 2.8% which has been raised for 47 consecutive years.

Statistical Summary

Stock Yield Dividend Growth Rate Payout Ratio # Increases Since 2002
KO 2.8% 10% 47% 10
IND 2.2 5* 45 NA

Debt/Equity ROE EPS Down Since 2002 Net Margin Value Line Rating
KO 31% 27% 1 19% A++
IND 53 21 NA 14 NA

*many companies in KO industry do not pay dividends


Note: KO stock made great progress off its March 2009 lows, quickly surpassing the down trend off its January 2008 high (straight red line) and the November 2008 trading high (green line). Long term, KO is in an up trend (blue lines); intermediate term, it is also in an up trend (purple lines). The wiggly red line is the 200 day moving average. The Dividend Growth and High Yield Portfolios own a one half position in KO by virtue of having Sold Half in early 2011 at $65. At that point, the stock was at the upper boundary of a 13 year trading range and it prompted a trading sale. Since then the stock broke out of that trading range. The upper boundary of KO’s Buy Value Range is $53; the lower boundary of its Sell Half Range is $95.

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.