Business Studies Scholarship Program – The Coca-Cola Company: The Old Guard Approach

The Coca-Cola Company: The Old Guard Approach

At the time of writing this, the S&P 500 has fallen over 10% from recent highs, indicating a correction. Because of this, many investors are fleeing equities to save-haven assets, such as bonds and CDs. However, even with the recent market tumbles, companies with strong financial positions and consistent growth with less exposure to China are interesting positions to consider. As such, I believe The Coca-Cola Company is a great company to invest in.

Name: Charles Zigliara
From: Athens, Georgia
Grade: Sophomore
School: The University of Georgia
Votes: 0

Q4 2019 hedge fund letters, conferences and more

Affects of the Coronavirus on Coca-Cola Company’s Supply Chains

The Coca-Cola Company has around a 3.5% dividend yield, which is not one of the highest percentages in the market but is solid given its consistency year-over-year. However, KO (ticker for The Coca-Cola Company) has diversified its portfolio of drink holdings to combat slowing sales for soft drinks due to concerns over health and has invested heavily in its still brand portfolio which includes Powerade, Dasani, and Vitaminwater. Because of the recent coronavirus outbreak, production of goods in China and Asia has slowed. However, KO is not necessarily having their supply chains affected as they produce their products worldwide in local regions. Sales may take a hit, but it is interesting to note that sales could also see a boost due to consumers stocking up on household products such as Dasani and Powerade.

Even following the financial crisis of 2008, KO held its stock price reasonably close to the peak before and has continued a steady uptrend since that timeframe. The KO portfolio includes hundreds of regional products to satisfy local consumer needs, and their portfolio grows larger every year. One of the most interesting things about KO is it is perhaps the most recognizable brand in the world. Every continent knows the familiar red and white branding of Coca-Cola, and the product itself provides a unique marketing opportunity for practically no charge. For example, KO can utilize its bottles and cans to market the Olympics, World Cup, or any other goal for hardly any charge besides manufacturing the label. This marketing is worth billions but can be achieved for little cost, making the brand name itself a powerful asset to the company.

KO can Weather a Downturn

I must note that my father works for The Coca-Cola company, and while I do not personally own any equity in the company, I have always been enamored with the company and how it utilizes its assets. The Coca-Cola company is run rather conservatively in terms of finances, something that can be very important to investors during downturns. KO had a particularly strong 2019, increasing revenues and EPS over 2018 substantially. This rise in revenue is a counterpart to falling cost of goods sold, increasing KO’s profitability to an $8.92 billion net income after extraordinaries. This cash flow puts KO in a solid position to weather downturn and continue operations and R&D to match their long-term goals.

All put together, The Coca-Cola Company is well positioned to weather any economic downturns and effects from the coronavirus while delivering promising growth and reducing costs associated with production. I expect KO stock to continue trending upwards and be much less volatile than the overall indices such as the S&P 500, while also providing decent dividends for its market cap level. I believe KO is a company that is not going anywhere anytime soon and has a solid foundation for the future of beverages.