The ultimate consumer stock
At a time when consumer stocks are still safer bets than most, why not go with the most famous of them all, suggests this U.S. advisory.
Walk into any square in Uzbekistan, or any mall in Malaysia and take a survey among the folks you meet.
Ask them to name one American product.
If the answer that tops the list weren’t Coca-Cola, we’d be very surprised.
As we have been trudging through the long, dark tunnel of recession, we have heard over and over again that it is a good idea to anchor one’s stock portfolio with “defensive” consumer stocks.
So why not this worldwide icon?
Why not, indeed, says Louis Rukeyser’s Wall Street. Although things aren’t letter perfect with this long-time soft drink king, it certainly sells a lot of beverages around the globe.
In fact, that’s what makes Coca-Cola Company (NYSE-KO) such a successful stock — its worldwide renown.
One, Two, Three
Coke has not done as well at home in recent years, writes Mr. Peter Staas. Sales are down in the United States.
But the real story of Coke is the 1.6 billion servings of Coke products every day across more than 200 countries.
There’s a corollary to that home-and-away sales picture. A stronger U.S. dollar can cut into its overseas revenues. Of course, if the greenback continues to decline, that problem shrinks as well.
The image of Coke as a worldwide symbol of American commercialism is nothing new. Almost fifty years ago, it was the subject of a movie (and a pretty good movie at that — 1961’s One, Two, Three with Jimmy Cagney).
It started with one cola drink in Atlanta in 1886 (just as prohibition had been declared in that county, by the way). The famous contour bottle came on the scene in 1915.
There are now over 3,000 products, including four of the five most popular soft drinks in the world — Coca-Cola, Diet Coke, Sprite and Fanta. Overall, the company has 13 brands that bring in more than a billion dollars a year, including vitaminwater and Powerade.
The big picture
In North America, the drive for healthier fare has not been entirely kind to Coke. And the economic slump can cut into sales too, as some opt for “knock-off” brand colas.
But that’s not where the growth is, anyway. 70 per cent of Coke’s operating income and 75 per cent of its unit sales are outside North America. In India, first quarter sales shot up 31 per cent from the year before, while in China the gain was 10 per cent.
There were high single-digit gains in Thailand and Vietnam, and Korea and Nigeria were not far behind. Across Latin America, the first quarter increase was 5 per cent.
You don’t need a map to see the big picture. This worldwide sales pattern, “along with a diverse product line, cushions the company from unfavorable trends in a specific business segment or geography,” says Mr. Staas.
That does raise one question. How much more growth is there to be had out there? On the other hand, what better launching pad for new products than this vast international sales platform.
A bump in income
One number that looks out of whack for Coca-Cola is the first quarter earnings per share. These actually fell from 65¢ to 58¢. But this was due entirely to exchange rate losses.
Take those currency calculations away, and operating income actually increased 17 per cent year-over-year. “And the opposite also holds true,” says this analyst. “The company receives a nice bump in income when the U.S. dollar declines in value.”
That bump appears to be growing almost daily.
Thanks to the big sell-off from which the market is still recovering, Coke is attractively valued (although its share price has risen almost five dollars in the short time since this article was published — it’s now at $49).
And those valuations don’t price in its long-term upside, says Mr. Staas. Coke also rewards its shareholders along the way. In February it announced its 47th consecutive annual dividend increase. It now stands at $1.64 and yields about 3.3 per cent.
Buying the world a Coke
Coke is not resting on its rather long list of laurels. Equipped with “capable management and reliable cash flow,” says this analyst, it is on the lookout for strong acquisitions. Most recently, it was seeking to buy a position in a Chinese juice company.
Toting it all up, Mr. Stass concludes that “Coca-Cola won’t just survive the downturn, it will thrive.”
Thirty-eight years ago, after fog in London had forced a landing at Shannon Airport in Ireland, a Coca-Cola creative director watched previously irate passengers unwind the next morning with bottles of Coke. This was the origin of one of the most popular commercial tunes in history, “I’d Like to Buy the World a Coke.”
Apparently, much of the world has had that bottle of Coke.
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