Stocks are continuing to suffer large losses—agricultural stocks, machinery stocks, shipping stocks, tech stocks and a whole host of others have suddenly lost their mojo.
I’m always on the prowl for stocks, and the cheaper they are the more I like them. However, cheap stocks can get cheaper and often become really cheap before the selling is done. We are in the midst of a major shakedown for stocks and though intriguing, I’m not biting just yet.
Instead, I am going to keep my focus on defensive issues for what I believe will be a protracted downturn in the economy. Of course, even defensive issues can lose ground in a bear market, but their losses are often much smaller than other stocks as investors and money managers seek out their relative safety.
One of the best in this category is Coca-Cola Company (KO). The internationally famous maker of the fizzy soft drink we all know and love can be expected to do well irrespective of the economy. Its products are relatively inexpensive, not to mention relatively addictive. (See also: "The Real Thing: Coca-Cola Stock Earnings.”)
Even during a recession you can expect that people will continue to buy the company’s products. We all know the classic brand Coke, but there are other names in the stable including Diet Coke, Sprite, Dasani, Tropicana and Nestea to name a few of their 450 brands.
In recent years the company has expanded its product offerings to include the growing energy and sports drink market. Sports drinks have been on the market for a long time (think Gatorade) and Coke’s Powerade brand is growing.
Energy drinks, on the other hand, are relatively new. They provide a quick and sometimes long-lasting pick-me-up, and are all the rage among students, office workers and late-night partiers.
As for growth, KO believes its best growth opportunities are overseas. Sales in Latin America and Eurasia grew 23.2 percent and 29.5 percent, respectively in the latest quarter. Last month the company said it would bid $2.5 billion for Huiyuan Juice Group Ltd., a major Chinese juice producer and one of the country’s best-known brands.
China’s Commerce Ministry said it will enforce anti-monopoly rules but no one knows what factors might influence their decision. A decision should be made within 30 days of the submitting of the application. If approved the company would have worldwide revenues of about $1.3 billion.
Of course, there are headwinds the company faces, and that’s the reason its shares trade near their 52-week lows. Commodity price increases have put a hit on margins and Coke’s volume growth slowed to 3 percent in the second quarter from 6 percent a year ago.
Revenue grew 17 percent in the second quarter, but 9 percent of that was from the beneficial effects of a weak dollar. Further a major shareholder, SunTrust Banks, has started selling a portion of its 44 million shares in order to raise capital.
That being said, Warren Buffet still owns his stake in the company. In addition, commodity prices are falling precipitously. That should bode well for KO down the road.
While we wait, shares yield nearly 3 percent and there appears to be more upside than downside. That’s about all we can ask for in this crazy market.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com and check out:
