Insider Trading Report: Coca-Cola

As the world’s largest producer of soft drinks, Coca-Cola (NYSE: KO) is a favorite of sweet tooths and investors alike, as it currently holds half of the global market share for non-alcoholic beverages.  In recent months, shares of KO have been up almost 6 percent, as the company has taken pride in its large-scale multinational investment and job-creating campaign.  In fact, Coca-Cola has expanded beyond the BRIC emerging markets to lesser-tapped areas like Kenya, Uganda and Bangladesh.  Unbeknownst to most investors, KO actually produces or distributes over 500 different types of soft drinks, from Coke to Rani, a Saudi Arabian beverage acquired through the company’s acquisition of Aujan Industries last winter.  Interestingly, insider sentiment surrounding this stock has been mixed.  As emperical studies have proven, insider purchases are a particularly good indicator of future performance, as stock options and similar types of transactions usually muddy the true meaning of selling activity.  Below are four of the most active Coca-Cola Insiders.

The Coca-Cola Company (NYSE:KO)

G. Evan Greenberg: As a Director for the soft drink giant and the Board Chairman of ACE Ltd (NYSE: ACE), Evan Greenberg is a Fortune 500 double dipper, though it should be noted that the only stock he has purchased in 2012 has been KO.  In fact, he has bought 10,133 shares since February for a total market value of nearly $750,000.  Greenberg’s annual salary the past few years has been in the range of $1.2 to $1.5 million, so these purchases aren’t coming cheap, as they may be to the higher-earning insiders of the corporate world.  Since his first purchase in late February, shares of KO have risen nearly 8 percent.

Barry Diller: Another Director at Coca-Cola, Diller has a significantly larger fortune than most of his peers, as it is estimated he has $1.6 billion worth of investments and cash in the bank.  This wealth can be seen by the sheer size of his KO purchases; last month, he bought 264,000 shares at a price of $76.97 for a value of $20.3 million.  After this bullish move, Diller’s holdings in KO totaled 2 million shares – that is a total value of $150 million.  In fact, KO shares represent nearly one-tenth of Diller’s total net worth.  This is notable because his interest in Coca-Cola is far greater than any other company he is linked to, including the Washington Post (WPO).

Jr. Alexander J. Douglas: Douglas is the current President of Coca-Cola’s North American group, and all of his transactions in KO this year have been sales, though they are entirely a result of stock options.  In February, March, and April, he exercised 263,040 options worth prices between $45 and $50, and immediately sold the stock at a 50 percent markup.  On the whole, Douglas made a profit of around $6.1 million off of these transactions, so they can hardly be taken as a bearish signal on KO.

Jr. B. Alexander Cummings: As the Executive Vice President, Cummings is also privy to a number of stock options each year, and he has sold a significant amount in 2012.  Specifically, he sold 170,000 shares of KO at an average price of $74 a share in March and April.  Cummings’s options were priced in a manner similar to Douglas, as he made nearly over $2 million on these transactions.

From an analytical standpoint, Coca-Cola is an attractive investment, as its 3-year revenue growth (13.4%) is greater than the industry average (6.2%), and competitors like PepsiCo (NYSE: PEP) at 15.4%, Dr. Pepper Snapple Group (NYSE: DPS) at 1.1%, Nestle SA (OTC: NSRGY) at 0.7%.  Moreover, KO has translated this growth to the bottom line, as its EPS has expanded by 14.0 percent over this same time period.  Intriguingly, the macroeconomic turmoil currently affecting the global markets may be causing investors to undervalue these earnings, as KO’s P/E (19.6X) is slightly below its own 10-year historical average (21.3X).  Looking ahead, it will be important for investors to keep an eye out on the company’s second quarter earnings release later this summer, as it already exceeded estimates in Q1.

Even though insiders have been buying and selling shares of KO in 2012, it is the former activity that is particularly important.  After all, the only selling activity has been a result of profit taking through the use of stock options.  A bullish take on KO has already been supported by some of the markets’ most respected hedge fund managers, as 13F filings indicate that Warren Buffett, William Von Mueffling, and John Horseman all hold at least a tenth of their 13F portfolios in the stock.  In fact, Buffett’s Berkshire Hathaway has over 20 percent of its 13F holdings in KO.  If that isn’t a term of endearment, let the insider buying activity be one.  Go long on Coca-Cola (KO) if you haven’t already.