Trade of the Day: Coca-Cola (KO)

by Jon Markman | June 10, 2014 9:41 am

Stocks closed higher in another quiet session on Monday, something of a dreamscape as you could see prices flitting by on the ticker, but they weren’t moving. In summer stock trading, often feels like time and price conspire with the sandman and the devil in an effort to put everyone to sleep just before something dramatic is about to occur.

What that element of drama might be, I have no idea, other than to say that after the fact it will appear obvious and as something that everyone should have been ready for. It could be an off-the-radar, off-the-wall geopolitical event like a military coup in China or a decision by Japan to re-militarize, or a new scandal in Washington, not that anything would surprise us who are stock trading anymore.

In the meantime, we are left with few directional drivers, mostly a pickup in merger and acquisitions activity and sudden weakness in Treasurys.

On the M&A front, we learned that Tyson (TSN[1]) was the winner of Hillshire Farms (HSH[2]) with a $63/share cash offer that values the company at $8.55 billion, a 70% premium over its price last month before it gained attention.

Think about that for a second. A real-money buyer, paying cash, offered 70% more than the current price for the maker of freakin’ Ball Park Franks, Jimmy Dean sausages and Gallo salame. If the maker of salty meat tubes is worth that much more than expected to a buyer that has to answer to a board of directors and shareholders, then what might be the fair price for companies that actually sell things that don’t need heart-health warnings on their labels?

Well, it is certainly making the shares of other food makers like General Mills (GIS[3]), JM Smucker (SJM[4]), Kellogg (K[5]) and Kraft (KRFT[6]) heat up. You can almost hear the Pillsbury Doughboy, who now resides at General Mills, cackling in the background.

These food-maker stocks have obviously been going up for some time, but there is still some upside here to relish, and I have a new recommendation on that score – one that is appearing on stock trading radars of many professionals[7].

Coca-Cola (KO[8]) has been largely ignored in the great race to buy food-makers lately, but it rarely stays on the sideline for long. It is cheap, pays a good 3% dividend, and should catch a better bid soon. Would you rather own an overpriced MLP with a 2% yield or Coke at a 3% yield? The case has to be made for the iconic beverage maker. We may need to be patient here, but KO’s stock trading chart shows there’s enough fizz for a 2.5% to 3%-plus pop in the short-term.

Buy at current levels, and take profits as KO approaches $42.

Jon Markman operates the investment firm Markman Capital Insights. He also offers a daily trading advisory service, Trader’s Advantage, and CounterPoint Options, a service that helps individual traders make steady, consistent profits with volatility-related instruments.

Follow Jon Markman at Google+.

Source URL: https://investorplace.com/2014/06/trade-of-the-day-coca-cola-ko-stock-trading/

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