It doesn’t get much more American than Coca-Cola (NYSE:KO) company. And if you’ve owned the Coca Cola stock since the 1990’s then you’re up 1200%. But perception is that KO stock is a boring stock to own — but clearly the scoreboard proves otherwise.
KO is at all-time highs going into its earnings report next week. So is it a time to get long or book some profits into the event?
The answer is not straight forward. It depends mostly on the investor time frame. But today we will try to devise a plan.
Coca Cola Stock Price and Levels to Watch
The daily KO stock chart is a steep rising wedge. Those are vulnerable to dips. Because if the ascending trend line of higher lows fails, it carries negative momentum. But when the reason for the rising is fundamental, this technical breakdown of the trend is temporary. In other words, those dips that are opportunities to buy.
So for the long-term investor, Coca Cola stock price at these level is not a reason to panic out of it just because an earnings event is coming. But for those looking for new entries into KO there may be better entry points. It may be best to wait out your earnings because the short-term reactions to earnings headlines are usually binary.
Even if KO management gives us the profit and loss statement ahead of time, we can’t guess which way price will move at the open. What drives KO stock price then will be expectations — not necessarily the quality of the report.
So if Coca Cola stock falls on the headline next, then I would buy the dip.
Charts have memory so there is a clear pivotal level in KO stock between $50 and $51 per share. This is prior resistance that now should become forward support. So it would take the management team delivering a disastrous quarter for Wall Street to sell it much lower than $49 per share. But this does happen. In fact it did happen two earnings ago when the stock fell 10% on the February earnings headline.
Back then, that was an excellent entry point. But I’m sure that in the throws of it, investors panicked out of Coca Cola stock. That’s why we’re looking at the chart ahead of time to spot those areas for this report.
So to be clear, if I own KO for the long term I should stay the course. But if I’m looking for a new entry point, I wait out the earnings results and hope for a dip.
If the stock falls 5% to 10% again then it is a blind opportunity to buy. The last 10% dip resulted in a 20% rally.
Stocks that are at all-time highs are not obvious buys just because of gravity. The fundamentals do not change much for Coca-Cola. This proven team that manages a cash cow. They know how to operate and compete against the best. I don’t expect a 10% dip this time around. Those are usually reserved for momentum stocks like Amazon (NASDAQ:AMZN) or Beyond Meat (NASDAQ:BYND) not Coca-Cola or Pepsi (NASDAQ:PEP). The risk this time is at worst 5%.
The Bottom Line on KO Stock
KO stock is not cheap. It sells at a 32 trailing P/E ratio and 6 times sales. This is twice as expensive Pepsi. They both offer a comparable 3% dividend yield.
In summary, although the long-term reward for owning Coca-Cola stock is huge, going into earnings next week and at all-time-highs is not an obvious point of entry. However if we’re lucky and Wall Street panics on the headline then we would pounce. After all, the S&P 500 is also at its all-time highs, so any which way we slice it, onus is on the bulls to maintain this incredible rising wedge going.
If I absolutely cannot wait to be long KO stock then I can sell the January $48 put and collect $1 for it. Then all I would need to profit is for KO to stay above it. Else I own the shares at $48 and breakeven at $47 per share.
Investing is risky business so I only risk what I can lose.