No need to beat around the bush – I am bullish on Coca-Cola (NYSE: KO) stock because it has something to offer investors of all stripes. Do you like dividend payments that are very unlikely to be reduced or eliminated? How about a good value – the type of bargain that would appeal to Warren Buffett or Charlie Munger? Maybe you prefer low-volatility stocks or just want to focus on rock-solid businesses. You can invest in KO stock for any or all of these reasons.
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Coca-Cola is a world-famous producer of soft drinks, snacks, and other edible goods. If any investable business could be described as an “oldie but goodie,” it would be Coca-Cola. The company survived the high inflation of the 1970s and the Great Recession of 2008 to 2009.
How has Coca-Cola fared during this inflationary and possibly recessionary year, though? No need to worry, as the company remains a risk-averse passive investor’s dream despite economic headwinds, and there’s no reason to believe KO stock will falter in the coming year.
KO Stock is Ready to Break Through a Key Resistance Level
Even before we get into the fundamentals that support a long position in KO stock, technical traders should be alerted to an important resistance level that looks ready to be broken once and for all. On multiple occasions this year, Coca-Cola stock rallied to $65 but was rejected – yet, the sellers can’t keep a great stock down forever.
Why hasn’t Coca-Cola stock been able to ascend above $65 and stay there? It’s not easy to get a low-beta stock to break out, and KO stock’s five-year monthly beta of 0.59 indicates that the stock tends to move slowly compared to the overall stock market. Therefore, investors must be patient and have realistic expectations.
Besides, a low beta means that KO stock is somewhat recession-resistant; if the S&P 500 (SPX) goes down, Coca-Cola stock probably won’t decline as much as the index will. Bear in mind that when the economy is in turmoil, soda is among the few affordable pleasures that families can still enjoy.
Now, we’re starting to understand why Buffett and Munger would want to buy and hold KO stock. Coca-Cola also offers stats that income-obsessed, fundamentals-focused investors might look for: a reasonable trailing 12-month P/E ratio of 28.2x, along with a forward annual dividend yield of 2.74%.
So, don’t fret if Coca-Cola stock doesn’t power through $65 today or tomorrow. You can simply hold the shares and collect the dividend payments – and even reinvest them to juice more potential profits from the trade.
KO Stock Will Hold Up in a Bad Economy
It’s in the financial headlines every day: a recession might be right around the corner. If you envision tough economic times, you don’t have to keep all of your wealth in cash. KO stock is fairly inflation and recession-resistant because Coca-Cola can raise its prices, and consumers will still buy the company’s products.
Indeed, Coca-Cola’s resilience was demonstrated in its Q3-2022 earnings release. During that quarter, Coca-Cola exceeded analysts’ expectations with outstanding top and bottom-line results. Despite high inflation and recession fears, the company managed to grow its net revenue by 10% and its EPS by 14% year-over-year.
How did the company demonstrate growth during this challenging time for the U.S. economy? Sure, families tend to drink soda regardless of financial conditions, but there’s more to the story. To borrow a phrase from Wedbush Analyst Gerald Pascarelli, Coca-Cola was able to get “really good price pack architecture.”
That’s a fancy way of saying Coca-Cola can raise its prices, and consumers will still buy the company’s products. Coca-Cola Chairman and CEO James Quincey has acknowledged that some of the company’s outstanding third-quarter results were driven, in part, by “pricing actions.” It seems, then, that while consumers aren’t enamored with higher soda prices, they’ve learned to accept them, and they’re willing to pay extra for the Coca-Cola products they’ve known and enjoyed for years.
Is KO a Good Stock to Buy, According to Analysts?
Turning to Wall Street, KO comes in as a Strong Buy based on 11 Buys and two Hold ratings. The average Coca-Cola price target is $65.85, implying 2.75% upside potential.
Conclusion: Should You Consider Coca-Cola Stock?
KO stock looks ready to shoot above $65 and beyond before the year is finished. However, there’s no way to guarantee that this will happen. If you’re like Buffett and Munger, though, then you should be less concerned with exact timing and focused instead on whether there’s good value in Coca-Cola stock.
It would be difficult to find a better value proposition than the one you’ll find with KO stock today. Coca-Cola is a supremely-resilient business with recession-resistant qualities – and the company’s dividend payments are as refreshing as an ice-cold soda.
