Coca-Cola is an iconic and world-renowned company that has been quenching its thirst for over 130 years.

With a diversified product portfolio that includes not just the beloved Coca-Cola stocks, but also popular brands like Fanta, Sprite, and Minute Maid, you’re sure to find something you love in the Coca-Cola lineup.

Sure, it’s true that soda consumption has been going flat in recent years, but Coca-Cola has been diversifying into other ventures.

This company has been mixing things up for years now, with an array of new tasty beverages like flavored water, teas, juices, sports drinks, energy drinks, coffee, and even alcoholic beverages.

It’s Not Just About the Same Old Cola Anymore!

Back in 1988, Warren Buffett pulled off a legendary move, when he scooped up more than $1 billion of the company’s shares, which at the time represented a massive 6.2% of the business!

This acquisition was so massive that it became the biggest holding in Warren Buffett’s portfolio at Berkshire Hathaway Inc.

Fast forward to today, and you’ll see that Berkshire Hathaway’s love for Coca-Cola is still going strong.
The holding firm now holds a 9.2% stake in the business, and is worth north of $25 billion as of November 2022!

It’s like Buffett has been holding on to his can of Coca-Cola for dear life! And for this week, let’s find out why!

But Coca-Cola’s Business is Dying, Right?

On the contrary. Investing in Coca-Cola may not be an obvious choice given the global decline in soda consumption.

Still, the company has diversified its product portfolio over the years by developing and acquiring more brands of other beverages. 

Additionally, it has also adapted its sodas with new flavors, healthier options, and smaller serving sizes to cater to changing consumer preferences and attract new customers.

The company’s ability to adapt and diversify its offerings reduces dependence on its flagship carbonated sodas and in turn, reduces the overall risk for investors.

Coca-Cola is a renowned brand worldwide, known for its diverse range of beverages, from classic carbonated drinks to water, sports drinks, ready-to-drink coffee and tea, juices, dairy, and plant-based options, making it a “total beverage company”. 

The strength of its brand and global recognition gives Coca-Cola strong pricing power.

Its products are considered premium, and consumers are willing to pay a higher price for them, compared to other brands.

This allows the company to maintain high margins, by passing on cost inflation.

Now Let’s Look at the Numbers,

2022 has been fantastic for The Coca-Cola Company. Organic sales increased by 16% in the third quarter of 2022, led by a 12% rise in price/mix and a 4% growth in concentrate sales.

Over the first nine months of 2022, organic sales growth was also at 16%.

The operating margin slightly decreased from 30.0% the previous year to 29.5% this year.

This effectively demonstrates The Coca-Cola Company’s pricing strength. Over the course of the entire year 2022, the company anticipates organic sales growth of 14% to 15%.

The financial performance of The Coca-Cola Company last year has been nothing short of outstanding, and it’s reflected in the stock price.

A comparison of the 1-year total return chart for Coca-Cola and the S&P 500 index shows a stark contrast.

… and then price action.

For the past year, the share price of Coca-Cola has outperformed the broad market indices.

KO is actually up by 3.61% despite the current bear market, while the Dow Jones Industrial Average and the S&P 500 is down by 7.07% and 16.66% respectively!

Talk about strength in the current doom and gloom!

Looking at the price chart, Coca-Cola was on a tear since its October lows, up a staggering 15%.

While the price has been consolidating between $65 and $62 for almost two months, MACD has been steadily going down, indicating that the stock momentum for KO is losing steam at the moment.

However, support was established at the $62 level, and if it holds, buyers might regain control again and retest the $65 resistance, and can even take out the all-time high price of 67.20! 

Sky’s the limit after that!

There are Headwinds, However.

Coca-Cola is undoubtedly a great company, however, according to fundamental analysts, the stock has been trading above fair valuations for an extended period.

Some investors might prefer to purchase stocks that are at fair value or below, rather than overpriced.

The projections for margins in the short to medium term aren’t as positive as analysts would like them to be.

It’s possible that we won’t see significant growth in margins in the near future, which is partly due to the current cost and currency headwinds.

But the Coca-Cola Company has a strong market presence in the beverage industry, and that’s certainly an advantage.

However, as a large company, it’s more difficult to maintain growth rates due to the law of large numbers.

It’s important to remember that as a company’s revenue increases, it must grow at a larger rate each year to maintain the same growth rate. 

While The Coca-Cola Company has made efforts to increase margins by reducing revenue, it may not be able to maintain double-digit growth rates going forward. Nonetheless, the company still maintains solid growth and is a stable choice for investors.

Final Takeaways

Warren Buffett’s assessment of The Coca-Cola Company as a “wonderful business” is spot on.

The company has a solid competitive advantage, or “moat”, and it’s likely to expand its market share in the beverage industry even further.

The company has demonstrated strong performance in the difficult economic conditions of 2022, and as a result, Coca-Cola has been outpacing the rest of the market.

It’s important to note that investing in Coca-Cola may not be a quick route to riches, but the company is well-positioned for long-term success.

Yes, the stock price may not be considered a “bargain” right now, but high-quality and well-managed businesses like Coca-Cola hardly ever go on sale.

Additionally, concerns about inflation should not be a significant factor for investors in Coca-Cola, as the company is well-equipped to handle the rising costs of raw materials, and is considered to be a solid consumer staple.

So, go ahead and add a little fizz to your portfolio, with this tried and true company.

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