The Coca-Cola Co (KO) has been a thoroughly pedestrian stock for investors to own in 2014; KO shares are barely in the black this year while the S&P 500 Index is up nearly 9%. Coca-Cola’s stock, on the other hand, has edged up just over 1% in the calendar year.
If you’re an investor in KO stock, you might already be attuned to the current secular change in consumer taste buds — a trend of customers becoming increasingly health-conscious at the expense of sugary, carbonated drinks.
Coca-Cola’s sales have reflected this shift in recent years. The storied beverage giant actually saw revenue fall by nearly 3% in 2013, and Wall Street analysts expect sales to slip another 1.4% this year.
Enter Coca-Cola Life, the company’s newest effort to appeal to an increasing preference for natural ingredients.
Coca-Cola Life is the company’s “first reduced-calorie sparkling beverage sweetened with cane sugar and stevia leaf extract.” Coke is disavowing the use of artificial sweeteners like aspartame, and instead hoping that consumers will give Coca-Cola Life a chance — and KO stock a boost.
A few of the new beverage’s characteristics give it a healthy chance of succeeding: At 90 calories per 12-ounce drink, Coca-Cola Life has 35% fewer calories than leading sodas.
And hey, it’s got a green label — so it has to be natural.
Will Life Be Enough?
Seriously, though, KO stock still faces an uphill battle, especially given the company’s flat U.S. sales growth. Sure, the Atlanta-based company has plans to conquer the globe by investing in operations abroad, but its grand plan to tap the growth potential of emerging markets hasn’t played out yet.
Net operating revenues in both Eurasia and Africa and the Asia Pacific markets rose just 4% year-over-year in Q3 — not the kind of massive growth that investors can count on to completely carry the company forward.
Coca-Cola has the right idea by focusing on the drinks. In fact, it could stand to do a little more on that front.
In addition to taking a swing with Coke flavored with stevia, Coca-Cola might be well served by increasing its investment in Monster Beverage (MNST), which is tapped in to one of the few growth areas in the industry: energy drinks.
MNST stock has soared nearly 50% this year, with much of the stock’s rise coming in August on news of a partnership with Coca-Cola. KO, in exchange for the transfer of its own energy drinks business and $2.15 billion cash, received a 16.7% stake in Monster, as well as Monster’s non-energy-drink business. Coca-Cola also will be Monster Beverage’s “preferred global distribution partner.”
Considering the dearth of growth in traditional soft drinks and the company’s recent profit warning, Coca-Cola Life can’t be expected to wholly change the game for KO stock.
A bigger stake in MNST stock, on the other hand, looks more promising.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid.
