The Coca-Cola Company (KO): A Few Companies That Are Built to Last

It is difficult to raise prices on food staples in a tough economy, but the portfolio of brands is extensive and built for the long run. Feel free to peruse yourself.  General Mills still boasts healthy profit margins and return on equity. Its dividend is over 2.5% with consistent growth, and P/E (around 18) is much more afordable.

Kellogg Company (NYSE:K)

Business is never all-good news. Kellogg Company (NYSE:K) is maybe one such story. It is a company with quality brands, even if they are mostly cereal, but the earnings numbers tell a much more depressing story. While its net income grew over 2011 levels, it is still behind 2008, 2009, and 2010. To make matters a little worse, debt levels have continued to climb. As of 2012, the net margin dipped below 7% for the first time in the last 10 years, making this debt harder and harder to pay back.

A bright spot may be the dividend, which is about 2.75% with consistent growth in the last five years, but how long that will last is conspicuous, given that their payout ratio has topped 65%. This may all be acceptable if Kellogg Company (NYSE:K) is now on the rebound, but with a P/E over 23, I have the feeling they are a bit too expensive to buy at the moment.

The takeaway

All in all, this exercise shows us the resiliency of solid companies in good and bad times. Looking at the business behind the stock prices may surprise some who attribute too much credence to the ‘mood of the market’ or the ‘efficiency of said market. The best advice is to do your homework so the risks of stock ownership are known. As per the saying ‘Buyer Beware!’

Candice Munroe has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and McCormick.