With soda consumption at a multi-decade low with no signs of rebounding, the prospects for Coca-Cola (KO) and other carbonated beverage makers seem pretty bleak. Good thing that the Atlanta-based soda giant has discovered the high-protein beverage market.

The company dipped its toe in the market in 2012 when it announced it was forming Fair Oaks Farms Brands L.L.C. with Select Milk Processors, a group of dairy firms. Their plan was to develop what they called an “innovative portfolio of brands and products that feature the value-added nutrition of dairy.”

Fair Oaks has recently begun selling Fairlife, which has 50 percent more natural protein and less sugar than regular milk. The timing couldn’t be better. American consumers are becoming more health conscious and are increasingly attracted to protein-fortified products — even though nutritionists argue that most people don’t need them.

As the trade publication FoodNavigator.com noted last year, the high-protein drink market is up for grabs. Market leader GNC (GNC) only has 4.8% of a very fragmented marketplace, which saw a 20% increase in new product launches in 2014. The $30 million ad campaign behind Fairlife should help KO stand out from the crowd, which is good news for owners of KO stock.

Shares of KO haven’t done much in the past year, rising about 5 percent. Activists have made soda public enemy number one in the battle against obesity. Wall Street has taken a shine to rival PepsiCo. (PEP), which unlike Coca-Cola, is far better diversified thanks to its Frito-Lay snack business. Shares of the Purchase, New York-based company have surged about 19 percent since January.

Winning the Cola Wars

KO may have won the Cola Wars but it lost the battle for the hearts and minds of investors. At least, that’s the case for now. The time has come, though, for investors to add KO stock to their portfolio. It’s the perfect contrarian play.

Yes, I know that PEP and KO are trading at about the same multiple. KO stock is a compelling value, trading at about a 14 percent discount to its average 52-week price target of $45.36. KO shares also offer a yield of 3.2 percent, topping PEP’s 2.7 percent.

I understand people may be skeptical KO’s recent history hasn’t been good for shareholders.   Statements like Coke Chief Customer Officer Sandy Douglas’ claim Fairlife will “rain money” for the company don’t help either.  The company was also bubbling with excitement over high-profile flops such as “New Coke” and “Clear Tab.” PEP entered the premium milk market a few years ago with Quaker Chillers and got nowhere.

One problem that Coke has to conquer with premium milk is the bad vibe consumers have about milk in general as some scientists have questioned its nutritional value. But the upside potential for Fairlife is huge given consumer’s growing interest in protein.

Prices for a half-gallon jug of the enhanced milk will be about $4.59, well above the $2.18 an $3.99 that consumers pay on average for a half-gallon of regular and organic milk. The company pegs the size of the protein milk market at $20 billion.

Unfortunately, Coca-Cola’s rivals are seeing those same statistics. Dean Foods Co (DF), the largest milk processor, is pushing its True Moo Protein line. Organic Valley, the largest seller of organic milk, has protein products as do smaller companies such as Shamrock Farms.

But the maker of Coke Zero and Diet Coke has a distribution network that these smaller companies can’t hope to compete with in their wildest dreams. Premium milk isn’t the silver bullet for Coca-Cola’s problems, but it is a promising development.

– Jonathan Berr does not own shares of the aforementioned stocks

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