Coca Cola (KO) Keeps its Fizz Buy, Sell or Hold

By: Money_Morning

Horacio Marquez writes: Continuing with the trend of companies that have blasted through Wall Street's earnings estimates of late, The Coca-Cola Co. (NYSE: KO ) last week announced its ninth-straight quarter of double-digit earnings per share (EPS) growth and a third straight year of meeting or exceeding its long-term-growth targets. Excluding one-time items, the Atlanta-based company's earnings per share of 64 cents represented a 10% gain from last year's fourth quarter , beating analysts' expectations by three cents.  In addition, Coke's unit-case volume was up 4% in the fourth quarter and 5% for the full year.

And they achieved this profit growth despite a very adverse situation.  In addition, the company had to take losses from the appreciation of the U.S. dollar, which was product of the flight-to-safety experienced in the last few months of 2008.  As the U.S. dollar has stabilized from last year's lows - and even rebounded in some of the key currencies - we do not expect to see the phenomena repeat itself in 2009.  Quite the contrary, we should see China pulling out economically and the yuan strengthen, and similar movements across key emerging economies.

Coca Cola's secret for success?  The emerging markets.  Despite the naysayers, as I have been writing, the reality is that most of them took advantage of the unprecedented phenomenon of global synchronic growth and reduced debt and accumulated reserves.  So China, which has almost no debt, has “only” some $2 trillion in foreign reserves. And a similarly benign picture occurs with India, Brazil, Chile and many other emerging economies.

Very importantly, these countries have a lot more people and populations that are younger and much-faster growing than the United States, and the real per capita income in all of them has been increasing at much faster pace, as well: Imagine 1.5 billion Chinese and 1 billion Indians incorporating Coca-Cola's drinks into their regular diets.  Will they? 

For starters, Coca-Cola has been around for so long and has been so successful, that its brand is marketing nirvana - the best-known consumer brand in the world. And research tells us that there is strong correlation between income growth and the consumption of sugar across the world, which brings us to Coca-Cola's secret sweet flavor, the envy of the soft-drink industry.

We clearly saw this phenomenon in Mexico as it came into the North American Free Trade Agreement (NAFTA) and incomes grew.  In the case of the region of Yucatán, where incomes grew strongly thanks to the spectacular growth of tourism and its development in the Cancun area.  And once people adopt a habit - especially a cheap one like a soft, fizzy drink or Coca-Cola's Vitamin Water, Dasani bottled water, PowerAde for sports or Nestea - it is hard to give up, even if things turn down.

From Beijing to Buenos Aires, to Goa, India, you will find that Coca-Cola refreshes not only your body, but your portfolio as well.  Because 75% of the company's sales come from outside the United States, this is the kind of stock that's worth owning long-term. So, if you are worried about the housing meltdown and the prospects for the U.S. economy, this soundly-managed U.S. company already gives you global diversification in the places that matter most today - the emerging markets.

You see, a good 90% of global growth this year is going to come from emerging markets.  And the reason is simple. Since these markets have accumulated that huge wealth, they are in a much better position than the advanced economies to stimulate their own economies.  And that's just what's happening.  China, Chile, Brazil and many other countries are resorting to lowering interest rates and expanding fiscal stimulus plans in order to grow.  These programs have been very appropriately targeted to support much-needed infrastructure development and also to support house, cars and appliance purchases with lending and tax breaks for most.  It took longer for the United States to launch its own, much-more-complex plan.

In any case, Coca-Cola is not content to just go through the ongoing global financial storm; it plans to grow through it.  This company, with its very long history of operating in a very long list of countries around the world, has seen recessions, financial blow-ups and currency disruptions as few have seen. It's managed to not only survive through them  but thrive. In addition to the end of dollar strength effects, we have seen commodities drop to much more comfortable levels, and this is wind in the sails for the company, even if this respite is temporary.

The stock is undervalued after having dropped from a 52-week high of $61.90 to the low $40's, even while still experiencing profit growth (Friday's close of $43.85 is only slightly above its 52-week low of $40.28).

A Price/Earnings (P/E) ratio of 12, for a consistent grower in a market as uncertain as this one, is very low. And that's especially true of a stock that also pays a 3.7% dividend rate, a company with a superb balance sheet and $8 billion in cash.

So we are going to jump onto Coca Cola, ahead of all these global stimulus packages and ahead of the positive effects of a global liquidity growth, as central banks keep easing rates and growing their monetary bases.

Recommendation : Buy The Coca-Cola Co. (NYSE: KO ) , which has blasted through earnings estimates as its global diversification and worldwide commodity softness keeps powering profits (**).

[ Editor's Note : Veteran Wall Streeter Horacio Marquez is the author of Money Morning 's hugely popular " Buy, Sell or Hold " (BSH) series, and is also the editor of the longstanding " Money Moves Alert " trading service.

As the hundreds of thousands of readers across the Internet who've read Marquez's insightful BSH missives know, the longtime Wall Street insider has a knack for picking stocks that are poised to move. Indeed, when he recommended the Brazilian exchange traded fund - the iShares Brazil Index (NYSE: EWZ ) - in late October, it zoomed 42% in six days .

In a new free report , Marquez has identified a category of stocks he has labeled "rocket stocks," which display key characteristics hinting that they're ready to move. One such characteristic: Heavy insider buying. In fact, one particular sector right now is seeing especially heavy insider buying - and many investors will be surprised to discover just what sector it is, and what companies top executives are buying into. For a free report that details these "rocket stock" plays, and that outlines this torrent of insider buying, please click here . The report is free of charge.]

(**)  Special Note of Disclosure : Horacio Marquez holds no interest in The Coca-Cola Co. (NYSE: KO ).

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