No doubt, The Coca-Cola Co (NYSE:KO) will always remain “it” with some income-oriented, orphans and widows investors. But off and on the price chart, Coca-Cola stock has lost a bit of its fizz and is looking less secure without sensibly hedging your bet. Let me explain.
Coca-Cola. It’s a storied and iconic brand. And the beverage giant is growing in key emerging markets and smartly moving into new beverage markets. One such push is into coconut water where the trend of consumers enjoying their less sugary and healthier Big Gulps is on the rise. That’s refreshing, right?
Coke is even exploring the adult, i.e. alcoholic beverage market and testing those waters in Japan. Then there’s that tasty Coca Cola stock dividend. Currently KO shareholders investors enjoy an above-market payout of 3.56%. That has to sound deliciously satisfying too?
But KO stock is a bit more contentious and less sweet off and on the price chart.
InvestorPlace’s Vince Martin recently warned investors should be wary of Coca-Cola. His argument is KO stock faces structural and secular issues and has failed to its truly capable of making up the slack in adjacent and growing beverage markets as its prized soda franchise falls flat.
Other analysts like Jeffries & Co are a bit more upbeat. The firm sees the opportunity for KO to be “a more nimble, leaner and consumer-centric company, focused on accelerating growth” under new CEO James Quincy, but nevertheless maintains a ‘hold’ on shares which appear fully-valued or even bloated.
Coca Cola Stock Weekly Price Chart
On the price chart, KO stock is also looking a bit more combative these days. Coke shares are trading under both the 200 and 50-day simple moving averages. That’s not a terrific sign in the realm of trend traders.
Also of concern, both key moving averages recently acted as technical overhead resistance as Coca-Cola stock attempted to rally. Further, there’s the worrisome confirmation of the two trend-lines having formed a bearish Death Cross signal.
Lastly, over the past year and change, Coca-Cola stock has tested its long-term uptrend line dating back to the low of the financial crisis in 2009. Thus far, the challenges have proven successful in maintaining KO’s series of higher lows intact. However, the multiple attempts at cracking support could prove the beginning of a much rougher period for Coca-Cola stock.
Net, net and at a minimum, this strategist doesn’t see KO worth purchasing under the naïve assumption of easy income and a name to safely tuck away under the mattress for the long haul without fully hedging that optimism.
Coca-Cola Stock Collar Strategy
If you’re agreeable with what’s been discussed, one favored strategy to own Coca-Cola stock with less risk is using a collar position. Reviewing KO’s options, one such combination is to buy shares while simultaneously purchasing the May $42 put for downside protection and selling the out-of-the-money May $46 call to finance the limited-risk guarantee.
Currently and with shares of Coke fetching $43.80, the collar is priced for $43.84. Thus, for 0.10% an investor bullish on Coca-Cola stock can hedge that optimism for the next couple months, be in position to ultimately collect income and more importantly; see if conditions improve with only the safety options and not a quarterly payout can provide.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
