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Should I Buy Coca-Cola (KO)? 3 Pros, 3 Cons

Are Coca-Cola's latest developments enough to offset weakening soft-drink demand?

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Since 1988, Coca-Cola (KO) stock has been a good enough investment for Warren Buffett … but that doesn’t mean that you should just dive in without doing your homework.

coca-cola ko stockShares have languished, having generated a return of barely 5% over the past year, about half that of rival PepsiCo (PEP).

Meanwhile, Goldman Sachs has a $41 price target — 3% lower than current prices — on KO stock based on the firm’s 2015 earnings estimates. And even the Oracle of Omaha has voiced some concerns about a sub-optimal use of Coca-Cola’s balance sheet of late — although he maintains his 9% stake in the company

On the flip side, Coca-Cola does have a few key catalysts that suggest potential upside ahead.

So, should you buy KO stock? Let’s take a look at whether the pros outweigh the cons:

KO Stock Pros

KO Is Growing: This fact might seem counterintuitive given that the U.S. carbonated soft-drink market is highly saturated, and given Coca-Cola’s gargantuan $180 billion market cap and $46.8 billion in 2013 net operating revenue. Still, KO stock apparently still has a sizable growth opportunity in emerging markets such as China.

After a recent visit with Coca-Cola officials in China, Goldman Sachs developed a more sanguine outlook Coca-Cola in that country. Indeed, KO is adapting to local consumption patterns there, resulting in a more centralized approach as opposed  to a broad-brush canvassing of its diverse product portfolio. In a recent report, Goldman analysts said:

“We walk away from the meeting encouraged by more segmented and targeted approach that KO is taking in China, which we believe could lead to better execution and more profitable growth.”

Goldman went on to say that it is seeing “firming growth” in the country amid an improved organizational structure and the more segmented approach, evidenced by a 12% volume increase in China in the first quarter.

Innovation: Coca-Cola continues to innovate, often ahead of its peers. Most recently, Coca-Cola took a 10% stake in Keurig Green Mountain (GMCR), which it then upped to 16%, in anticipation of the Keurig Cold machine, which is set to make its debut later this year. The risk isn’t huge given Coca-Cola’s war chest of roughly $20 billion in cash and short-term investments. Meanwhile, the opportunity is great — the market share opportunity for at-home beverages is on the rise, with domestic retail sales of these machines increasing 30% in 2013.

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Article printed from InvestorPlace Media,

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