There was a notable pullback in The Coca-Cola Company (NYSE:KO)’s shares following its recent disappointing earnings report that saw its bottom line dip to $2.68 billion from $2.79 billion in the year-ago quarter. As expected, witty investors were quick to capitalize on the pullback. Nonetheless, if you missed the dip, it’s still not too late to buy. The Coca-Cola Company (NYSE:KO)’s fundamentals remain compelling. This, coupled with the negative industry-wide outlook, presents a good entry point into the stock. It’s still not too late to add this stock to your portfolio.
Negative sector outlook an incentive to buy
The main headline in the North American non-alcoholic beverage sector remains increased advocacy for healthy alternatives. This push, despite being significantly beneficial to consumers, has had far-reaching effects on The Coca-Cola Company (NYSE:KO)’s margins. For four of the past five quarters, Coca-Cola’s soda sales have plummeted in North America. Last quarter they fell 4% on a 1% slip in volumes.
Going forward, increased push for healthier alternatives is expected to hurt soda sales further. And as expected, a section of analysts have already started penning apocalyptic write-ups in this regard. This is good for The Coca-Cola Company (NYSE:KO). Increased negative sentiment will maintain the share price at the current relative lows, presenting a good entry point for investors who want to enjoy a little growth and sustained income.
Staying ahead of trends and competition strengthens long term outlook
How will The Coca-Cola Company (NYSE:KO) maintain its edge amid an increased negative sector outlook? It is already doing something. Coke Zero, its rebranded sugar-free alternative, is making notable headway. But that is not the half of it. In light of increased demand for bottled water and fruit drinks, Coca-Cola has stepped up marketing for Minute Maid and Dasani bottled water. Coca-Cola’s strong financial position relative to its competitors allows it to adapt more swiftly and effectively to changing industry trends.
In 2011, the State of California, through its Proposition 65 Law, ruled that levels of 4-MEI (the chemical that gives cola its distinctive brown chromaticity) in Pepsi and Coke warranted a cancer warning label on each soda sold in the state. While both PepsiCo, Inc. (NYSE:PEP) and Coca-Cola promised to follow through on reducing the levels of the carcinogen, only Coke seems to have significantly followed through. A recent study conducted by the Center for Environmental Health affirmed that 10 out of 10 samples of PepsiCo, Inc. (NYSE:PEP) products sold nationwide outside the state of California in June contained 4-MEI levels that were on average four to eight times the recommended safety thresholds in California. In stark contrast, 9 out of 10 Cokes sold in the same timeframe contained little or no traces of the carcinogen. This, coupled with many more examples, signals Coca-Cola’s ability to swiftly react to changing trends.
Peltz’s self-serving PepsiCo report win-win for Coca-Cola
In the near-term, The Coca-Cola Company (NYSE:KO) is set to gain from Nelson Peltz’s recent take on PepsiCo. Peltz, leader at Trian Fund Management, argues that PepsiCo should wind down its beverage business and take a more emphatic stance on the snack business; starting with acquiring Mondelez International Inc (NASDAQ:MDLZ).