Coca-Cola Company

KO-N

Coke differs from the broader staples sector. It’s strong between March and June, so look for it in the second quarter. Seeing a rollover, and a short-term double top. Suggests more downside weakness. Heading for breaking support at $44 and $41. Stay away.

(Past Top Pick, June 25, 2018, Up 4%) Disappointing. Expecting more from it, but he'll hold onto it. There's time.

It's built a nice base. It's so boring, yes, but whenever it reaches these levels in the low-40s, it bounces up. Limited downside, but likely upside. (Analysts' price target: $49.80)

Great, solid company, but not going anywhere. The trend is moving away from soft drinks. They've already penetrated the world and face newer soft drinks coming up. Probably see a small dividend increase. Hold it and get your dividend to sleep at night, but there's not enough growth here. Dividend yield of 3.6%.

Prefers this stock to Pepsi (PEP-Q). Has also diversified away from soft drinks. Has divested its bottling business. It collects royalties from that, along with cash from the sale. If he had to pick between them, he would buy Coke.

One of the great companies of the world according to Warren Buffet. Volumes are probably going to start to decline as people drift away from carbonated beverages. They still have tremendous profitability in the third world. At 25X earnings, it is discounting a lot of that, and the stock will do well the next time the market falls. Dividend yield of 3.3%.

If he owned this, he would switch to Pepsi (PEP-N). There is more optionality with Pepsi. Coca-Cola has re-franchised their bottling agreements. The margins are relatively high. Pepsi is not as operationally efficient, which means that it is probably a better acquisition target.

Has gone through a number of iterations where it has been a beverage company, the bottlers are in and then out and then in again, and then into snack foods. Rather than the Coke side of things, you might be better with the Monster Beverage (MNST-Q) side. In a sense, you are leveraging the purchasing power of the Coca-Cola papers, because they are going to buy out Monster.

He would love to buy this if it got a lot cheaper. Has a great franchise. The problem with most consumer staples companies is that they are relatively expensive. The recent run-up is largely a function of the decline we have seen in the US$ versus other currencies. The company is structuring challenged in that you are going to see low single digit volume growth. They have tried to refranchise a lot of their bottlers, and are going through some transitional issues. Too expensive and too low a growth.

Not a sector he favours at this time. However, this has been decent, relative to the other names in the space. Trading at about 23.5X Earnings with a 6%-7% growth rate, making it a bit expensive. It gives a 4X PEG ratio, which is the high end of its range. It’s forward PE of 23.5 is at the high end of its 10-year range.

This has been diversifying into other beverages including water and new age beverages. Prefers PepsiCo (PEP-N) which can do foods with snack foods where their focus on growth is. In the short term, both are going to be a little weak. The consumer staples group has done well, but now people are looking to get a little more cyclical, so these 2 are running out of favour in the short term.

Valuation is a little stretched. There is a strong correlation between this and the US$. They generate a lot of sales outside the US, so when the dollar weakens, this does relatively well. They are trying to become less capital intensive, so are getting rid of some of their bottling operations. When they sell those off, they should use that as an opportunity to improve their balance sheet. The carbonated soft drink business is struggling and you are probably going to see only about .05% growth during the next few years. If they focus on their balance sheet, they should be able to generate a modest amount of earnings growth going forward.

One of the world’s great brand names. They are gradually losing market share as people are consuming less. They’ve moved into other beverages. With global retail under pressure, they will be pressured a bit. For the next couple of years, he would prefer to be somewhere else. 3.3% dividend yield.

It has been relatively flat. It is coming to the point where it stopped in 2016. It has to be proving itself to be breaking out and if it does that could be bullish. It is a neutral looking chart. $40 would be a good place to buy to trade the range.

A very strong name. The real question is if they can transition from the soft drink business to the healthier side of the business. Recently they announced some layoffs. Good distribution, but you are going to have to see that transition to healthier snacks.

(A Top Pick April 13/16. Down 1%.) This has underperformed over the last 12 months.

Coca-Cola (KO-N) or PepsiCo (PEP-N)? These are both struggling with the carbonated soft drinks side of things. There really hasn’t been much in terms of revenue growth for either. This company has a new CEO coming on board. They have some initiatives they are working on now, but it is going to take some time to grind through. She’ll just watch from the sidelines.

It is 100% a drink company. Pepsi is more of a food company than a beverage company, which he prefers.

(A Top Pick March 16/16. Down 2%.) This really didn’t go anywhere to excite him. He now prefers Pepsi (PEP-N), which is a bit more dynamic.

Iconic brand with consistent return on equity. Buffet owns a large position. This is a buy, hold and forget-about stock. They spent decades building their distribution network and it is one of their strengths, besides their recipe.

He is not a fan and prefers PEP-N. KO-N is almost exclusively a soft drink company. Soft drinks are under attack and in decline as people move more and more towards water. He does not care for the outlook. Pepsi gets most of its earnings from food – Lays and Quaker.

A sort of serial under performer. From a fundamental basis, it hasn’t made much progress at all, on revenues, margins, earnings, cash flow. They are trying to move away from sugary water and to become healthier. Not doing as good a job as Pepsi has done, and it shows. There is so much more opportunity out there to buy good quality companies that are organically growing with great management and reasonably priced.

This typically does very well in the summer. Currently it is in a trading range. You want to watch this trading range, and if it starts to move above the range, it could be an interesting seasonal trade in about June right through until September or October.

It is a really tough business. It has a nice little rounded base on the 20 year chart. Deterioration happened in September in the industry. He does not see tones of catalysts. You have to buy when valuations are in your favour.

Sectors that started performing better than the rest of the market in June 2016, were transports, industrials, financials, technology and materials. These are the groups that are positively correlated to rising inflation and rising real interest rates. They are the most economically sensitive sectors. Earnings have been improving for the last three quarters. Where money is coming from and going to come are sectors that benefit in low interest rates and low growth, to sectors that benefit in higher growth and a little higher inflation. Consumer staples don’t fit that category, and are being used as a source of funds. Doesn’t think you will get hurt badly with this, but feels you are just missing out.

A wonderful company, slow growth, very expensive and a low dividend yield. He wouldn’t own it. There are other areas of the market that are much more enticing. Dividend yield of 3.4%.

A consumer staple name, which will probably be affected by a couple of things. Since April it has been having lower lows and lower highs. It has broken below its 200-day moving average, and the 200-day moving average is starting to turn downwards. Trading at a forward PE of 20X earnings. Growth rate is probably mid-single digits, which gives it 4X on a PEG ratio basis, which is not cheap.