KO Stock Cons
Emerging markets: Emerging markets have come under lots of pressure. As the Federal Reserve has engaged in the “taper” of its quantitative easing policy, the result has been an outflow of capital from emerging markets, which has muted growth. Unfortunately, this has been a drag on KO stock. While there are some signs of stabilization, it could still take a while for emerging markets to regain their strength.
Health concerns: With the rise of obesity throughout the globe, governments are looking for ways to encourage healthy habits. Of course, one way to do this is to target sugary drinks. Just this week, a California senator even proposed “warning” labels. About three-quarter of Coca-Cola’s sales volume comes from soft drinks, which means the potential trouble is enormous. The company has been making efforts to deal with the situation, though most are still in the early stages. One is Coca-Cola Life, which uses a natural sweetener called stevia. The company has also been changing its marketing message, with some commercials extolling the advantages of exercise and a healthy diet. But it seems like the movies have created more confusion, as the Coca-Cola brand is still mostly about soft drinks.
Competition: Of course, the biggest competitive threat is Pepsi, which has been ramping up its soft drink business. But KO must deal with other players like Monster Beverage (MNST) and Dr Pepper Snapple Group (DPS). These companies have been getting more aggressive with marketing, and may appeal to younger generations who could be turned off by mega brands.
KO Stock Verdict
About a year ago, Warren Buffett said that KO stock could face trouble if management became complacent. This was certainly big news since his firm, Berkshire Hathaway (BRK.B), was the biggest shareholder in the company.
Unfortunately for KO stock, it looks like Buffet was prescient yet again. For the most part, KO stock has been a laggard with its marketing and new products. At the same time, there have been headwinds from emerging markets and health issues.
True, it’s encouraging that KO stock has recently picked up its pace, as with the company’s investment in Green Mountain. Yet it will probably take time for the deal to get traction.
So should you buy Coca-Cola? No — for now, the pros outweigh the cons. There are too few catalysts to get the company back on track, at least in the short run.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.