Shares in this iconic brand are the real thing
This stock tip delivered a 24% profit, and the market crash offers a chance to replicate the trade.
25th March 2020 11:05
by Rodney Hobson from interactive investor
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This stock tip delivered a 24% profit, and the market crash offers a chance to replicate the trade.
Rodney Hobson is an experienced financial writer and commentator who has held senior editorial positions on publications and websites in the UK and Asia, including Business News Editor on The Times and Editor of Shares magazine. He speaks at investment shows, including the London Investor Show, and on cruise ships. His investment books include Shares Made Simple, the best-selling beginner's guide to the stock market. He is qualified as a representative under the Financial Services Act.
Things were going so well for soft drinks maker Coca-Cola (NYSE:KO) at the end of last year. Then came the coronavirus pandemic and the fizz evaporated. When we eventually come out of the crisis, the shares could be the real thing.
Coca-Cola is the largest non-alcoholic drinks maker in the world with brands that include Coke, Fanta and Sprite.
It also has some non-sparkling brands. Most of its efforts go into the early stage of the supply chain, making concentrates that are processed and distributed by a network of 100 bottlers. Revenue is generated around the world. It sells in 200 countries and makes nearly 70% of its sales outside the US.
Source: interactive investor Past performance is not a guide to future performance
At the end of January, the Atlanta-based company reported a strong performance in the final three months of 2019, with earnings per share more than doubling from 20 cents to 47 cents.
Net earnings were similarly ahead, from $927 million in the previous fourth quarter to over $2 billion. Organic revenue grew 7% and total revenue was 16% higher, with group volumes ahead by 3%.
Around the globe, sales were patchy but with most regions ahead. Latin America was the best performer with 26% organic growth on volumes up 3%; Asia Pacific was up 8% and in North America revenue rose 4% even though volumes were flat.
The disappointment came in Europe, Middle East and Africa where organic revenue slipped 2%. But one of the big advantages of Coca-Cola is that its global reach means any setbacks can be more than compensated for elsewhere.
Over the whole year, revenue increased by 9% to $37.3 billion and net income soared by 39%. All regions were ahead over the year as a whole.
Chair and chief executive James Quincey claimed that Coca-Cola was growing in a more sustainable way and he was confident that organic revenue would rise 5% in 2020, with earnings per share of $2.11-2.25. At the top end, that would be 7% ahead.
Clearly the Covid-19 lockdowns in various countries will knock a hole in that assessment, but the impact should be lessened substantially by the fact that food stores need to be exempted from any enforced closures of retail outlets. Sales of soft drinks should hold up reasonably well.
Source: interactive investor Past performance is not a guide to future performance
More impact will be felt at the Costa Coffee shop chain bought from Whitbread (LSE:WTB) in January last year. Many commentators felt that the Americans had acquired a great business with enormous potential for expansion.
That acquisition of 2,700 outlets looks somewhat ill-timed now, especially as Coca-Cola is committed to paying 16,000 members of staff at closed stores their full average weekly pay over eight weeks. Cafes, where complete strangers congregate, are naturally seen as expendable in lockdowns, but we will one day get back to normal.
While figures from China are suspect, the tailing off of cases and deaths reported there are being replicated in places such as South Korea and Singapore and possibly in Italy. Coca-Cola has the financial clout to hang on until we turn the corner.
I last looked at Coca-Cola on 1 May when it reported quarterly profits beating analysts’ forecasts and the shares looked unfairly subdued, having fallen back from a peak at $51.
The stock closed that day at $48.39 and I suggested buying below $50. It looked a good call as shares rose steadily to a peak above $60 in February. They have since slumped to $38 but have come off the bottom to approach $40.
Hobson’s choice: The advice to buy up to $50 still stands although investors can easily beat that at the moment and will probably be able to do so for some time.
Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.
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