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The Coca-Cola Company (KO), Visa Inc (V): The Best Way to Play the Rise of the “Middle Class” in Emerging Markets

America has one of the top economies in the world. Much of that is thanks to what we refer to as the “middle class.” The middle class, sometimes referred to as “the consumer,” has been driving American economic growth for the last few decades as illustrated in the chart below:

Source: Epoch Investment Partners

This trend has allowed various companies to build immense brand power as consumer staples to the “American Dream.” These trends are now starting to take hold in emerging markets whose economies have developed slower than that of the United States. “Middle classes” have started to grow in these lesser-developed economies, allowing the consumers to provide growth opportunities for these same American brands. These brands are a “shiny object” that are desired by emerging markets as they seek to mirror the consumer status displayed in middle-class America over the past several decades. The graph below shows consumer spending in emerging markets as of 2008 along with a projection for 2030 shown by the “outer rings:”


The below plays are wonderful businesses that will benefit from the macro-economic trends that the world will face over the next decade.

Have A Coke

The Coca-Cola Company (NYSE:KO)The Coca-Cola Company (NYSE:KO) is perhaps THE American brand. It is the most popular soft drink in America, and perhaps the most well-known in the world. The Coca-Cola Company (NYSE:KO) is perhaps the best company in the world when it comes to marketing as well. Its “Buy The World A Coke” commercial is among the most well-known and recognized advertisements of all time. The Coca-Cola Company (NYSE:KO) also sells other brands such as Sprite, Fanta, Dasani, Powerade, Minute Maid, and Vitamin Water.

The Coca-Cola Company (NYSE:KO) is driving its growth through emerging markets, it has seen a 5% growth in international volumes over this period last year. This includes:

18% growth in Thailand

8% growth in India

8% growth in Russia

3% growth in Mexico

3% growth in Brazil

This volume growth, combined with The Coca-Cola Company (NYSE:KO)’s 18.8% operation margin, equates to a stable source of cash flows. Coca-Cola has used this cash to reward its shareholders through 51 years of straight dividend increases at a clip of 9.8% per year over the last decade. While the growth at The Coca-Cola Company (NYSE:KO) has slowed a bit in recent years, the company should continue to increase it’s dividend by 5-8% annually.

Paying With Plastic

Visa Inc (NYSE:V) is the largest payment processing company in the world. With roughly 80% of the world’s transactions still done in cash, Visa Inc (NYSE:V) faces an excellent growth opportunity. The below graph shows the current projected volume growth of its international transactions:

Source: MSN Money

Visa Inc (NYSE:V) has seen a 20% increase in international transaction volume from 2012 to 2013 alone, with the primary source of this growth coming from the Asia-Pacific region.

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