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The shares of Coca-Cola (KO), first discussed here on February 20, 2009, at a price of $42.68, have misbehaved in the last three months, falling from $55 to about $51, but the calculation is to stick with the trade. Here's why:
Look for Coca-Cola to post 5% to 7% revenue growth in 2010, propelled higher by international sales, and strong growth in non-carbonated beverages. Efficiency improvements, moderating commodity costs, and quicker-recovering emerging markets round out the story of Coke surviving yet another recession, and then some.
Further, Coke has successfully re-positioned itself amid the consumer trend toward health and sports drinks (POWERade, vitaminwater) and away from carbonated drinks. That said, the "big 4 carbs" -- Coca-Cola, Diet Coke, Fanta, and Sprite -- are doing nicely internationally, thank you, which will more than offset sluggish volume in the signature cola brand in the U.S. A cool $1.76 annual dividend rounds-out the positive story.
The First Call FY2010/FY2011 EPS estimates for KO are $3.45 to $3.72.
Technically, as mentioned, KO's shares formed a bear hug starting in January, and that typically would warrant ending the trade, but Coke's demonstrated business model gets the benefit of the doubt here. For now, the calculation is that KO will hold support at/near $50.
2010 Outlook: I view Coca-Cola as a long-term play, but if investors are looking to sell KO within the year, it's probably best to take your profits after it rises to $57 to $59, if it fails to clear $60.
Stock Analysis: I consider Coca-Cola to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 50% position in KO now, then buy another 25% in one month if U.S. and global economic conditions don't worsen substantially. Under any circumstance, I wouldn't buy more than 75% of my KO position before September 2010 and I'd put a sell/stop loss at $27.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
The First Call FY2010/FY2011 EPS estimates for KO are $3.45 to $3.72.
Technically, as mentioned, KO's shares formed a bear hug starting in January, and that typically would warrant ending the trade, but Coke's demonstrated business model gets the benefit of the doubt here. For now, the calculation is that KO will hold support at/near $50.
2010 Outlook: I view Coca-Cola as a long-term play, but if investors are looking to sell KO within the year, it's probably best to take your profits after it rises to $57 to $59, if it fails to clear $60.
Stock Analysis: I consider Coca-Cola to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 50% position in KO now, then buy another 25% in one month if U.S. and global economic conditions don't worsen substantially. Under any circumstance, I wouldn't buy more than 75% of my KO position before September 2010 and I'd put a sell/stop loss at $27.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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