For most people today, Coca-Cola (NYSE:KO) is a brand and a significant piece of Americana. Many even consider it their prime choice among beverage-makers. However, what it isn’t — unfortunately — is a viable investment. I’m sad to say this, but KO stock is incredibly frustrating.
Historically, Coca-Cola stock just exists to pay out its fairly generous 3.4% dividend yield. Certainly, though, this is not the platform to get rich on. Over the past five years, KO shares have gained less than 15%. With a performance like that, this legacy firm isn’t going to endear itself to the younger crowd.
Even more maddening, KO stock performed admirably late last year. This was in the face of a broader market meltdown that gutted several relevant names. Finally, it appeared that management was making substantive progress toward its re-branding efforts.
However, the numbers told a different tale. Revenues for the fourth quarter of 2018 slumped badly against the year-ago level. KO stock is currently on the recovery path after Q4’s devastating numbers. The question, of course, is whether you should trust this rally?
If any investment suffers from this-time-it’s-different syndrome, it’s KO stock. However, risk-tolerant buyers may want to check out these three underappreciated tailwinds:
KO Stock Can Rule a Still-Popular Soda Market
You’ve heard it a million times: soda is a dying beverage category. Moreover, as younger people eschew sugary drinks for healthier alternatives, that leaves little room for KO stock and rivals like PepsiCo (NASDAQ:PEP). Seemingly, the Q4 figures add weight to this bearish argument.
If that wasn’t bad enough, both Coca-Cola and Pepsi cater to an older demographic. According to a 2016 Adweek report, Coke was the favored beverage among those aged 35 to 44 years. And for Pepsi? Try the retirement community — those aged 65 years and up.
But on the flipside, several soda brands are making a comeback, including Slice soda and Jolt Cola. As I mentioned earlier this year, this product revival is too young to make an accurate assessment of its success. However, if demand didn’t exist, investors wouldn’t risk their money on such a speculative venture.
Moreover, more recent data indicates that American consumers still love carbonated drinks. KO’s management team is looking to advantage this trend with their premium Smartwater brand. This might turn out to be a great move for Coca-Cola stock. With Smartwater, the company can apply the desired carbonation with the equally-desired “healthy” tag.
Millennials Are the Healthy Generation? Think Again!
As we just discussed, a major impediment to Coca-Cola stock is the millennial generation. Several sources refer to this demographic as the healthier generation: they smoke less, they exercise more and they make better nutritional choices.
But what if I told you that this was all BS? Well, it is. And don’t take my word for it; instead, listen to the Pentagon.
According to the Department of Defense, more than 70% of Americans aged 17 to 24 are ineligible for military service. Why? The two most-cited reasons are health and inadequate physical fitness. As a result of this dearth of qualified recruits, some military branches are lowering standards for enlistment!
So what’s causing this disconnect between perception and reality? I genuinely believe that millennials think they’re making healthier choices; hence, their flawed answers to survey questions. But expanding waist sizes and pools of unqualified military recruits tell the real tale: millennials are actually the least healthy generation.
That’s a big plus for Coca-Cola stock because it’s not the product that’s the impediment, but the marketing. Change the marketing — which the company is already doing — and KO will eventually score the coveted millennial demo.
Coca-Cola Isn’t Just About Soda
While KO stock has frustrated investors to no end, I hope that my contrarian arguments provide some food for thought. The soda market, as ugly as it might look now, isn’t quite so terrible when you drill into the details.
But despite the brand name, Coca-Cola stock isn’t just about soda. The company offers the full spectrum of beverages, ranging from premium water to natural juices to the sugary concoctions.
I’ve mentioned this before, but one segment to watch closely is Coca-Cola’s acquisition of Costa Coffee. While analysts have criticized KO for paying a hefty premium for Costa, the buyout provides a viable channel into China. Taking a chunk of Chinese market share will do wonders for overall growth.
On the surface, that’s not easy considering giant rivals like Starbucks (NASDAQ:SBUX) are already operating in the region. However, don’t dismiss Coca-Cola so easily. Through its Japan-based Georgia Coffee brand, KO has substantial experience delivering successful results in the Asian market.
Let me emphasize that KO stock will likely require patience. However, the fundamental tools are in place for a surprising — and sustainable — recovery.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
