Dueling Fools: Coca-Cola Bull

Perhaps it's the refreshing Coke I'm sipping between keystrokes, but I've rarely been as bullish on Coca-Cola's (NYSE: KO  ) shares as I am now. Feel free to pop open a can for yourself as I explain why.

A delicious brand
Coke, a Motley Fool Inside Value pick, is still the world's most valuable brand, calculated at a net worth of $67 billion in the most recent Interbrand survey. For perspective, consider that $67 billion equals roughly two-thirds of the soda king's enterprise value. Wow.

But it makes sense, doesn't it? Coke's brands, which include the red-striped can we know and love -- as well as Sprite, Minute Maid, Powerade, and Godiva chocolate lattes -- can be found almost anywhere in the world. (Seriously.)

That won't change soon, either: Over the past 12 months alone, Coke has introduced 1,000 new drinks or variations on existing beverages, BusinessWeek reports.

The Ronald McDonald workout
Maybe that sounds crazy. If so, prepare to laugh even harder: BusinessWeek reports that Coke's marketing, strategy, and innovation chief, Mary Minnick, wants to introduce what can only be described as lifestyle beverages. That's right: She wants you to ingest a beauty drink. Or guzzle a can of weight-loss pop. It's positively loony! Or is it?

In 2003, McDonald's (NYSE: MCD  ) -- stuck in the fryer for too long -- stumbled its way into healthier food choices in the hope of improving performance. I never thought it would work. Seriously, McDonald's salads? That's like going to Weight Watchers for a Super Bowl party. Except that it wasn't. Healthier menu choices and ruthless attention to details brought the House of Ronald back from the brink, Happy Meal in hand.

Now, how is Coke's tinkering any different? Answer: It isn't.

Putting capital to work the right way
Better still is that tinkering has become cheaper for Coke, BusinessWeek reports. While she was head of operations in Asia, Minnick ran point on a highly efficient system in which her team, using data from regional 7-Eleven stores, would be able to judge the success of a new beverage in four weeks or less.

Now there's evidence that Coke can be even more precise. According to a recent article in tech publication eWEEK, Coke uses business intelligence software from SAP (NYSE: SAP  ) that can crunch needed data in as little as three seconds. Considering the number of brands Coke sells, and the size of its distribution network, that capability appears to be extraordinarily useful.

Financially, it may be. Coke's second-quarter results featured notable improvements in several key areas. For example, carbonated beverage sales -- a Coke staple -- rose 3%. Meanwhile, rival PepsiCo (NYSE: PEP  ) reported a strong quarter overall but underperformed on the fizzy stuff. That suggests Coke is finding creative ways to keep its core business in the black.

Or green. Coke should produce at least $4 billion in free cash flow this year, more than enough to keep funding a generous dividend, an aggressive share repurchase plan, and the research and development capital Minnick and her team seek to break new ground.

The best buying the best
Finally, it's worth noting that these advantages are capturing the attention of investors inside and outside the company. For example, in May, board member Herb Allen spent more than $21 million to snap up shares of Coke for around $42 a share. He's done well, up roughly 6% so far. But he's unlikely to be watching the ticker. Allen, after all, didn't become one of Forbes' 400 richest Americans by buying and then flipping mediocre businesses. He's a buy-to-hold billionaire.

Bill Nygren, lead manager of Motley Fool Champion Funds choice Oakmark I (FUND: OAKMX  ) , may not be as wealthy as Allen, but he's no doubt as skilled an investor. And he likes Coke's stock just about as much. According to the website GuruFocus.com, Nygren recently purchased 1.4 million shares for an average price of $42.60 a stub. Wanna bet he thinks the shares are anywhere near fully valued?

Of course he doesn't, because it isn't. Coke's business is enduring. The company has a well-known brand, ample free cash flow, good management, and, now, expert backing among superior investors. Only an ice-cold glass of sugar water could taste better.

Ask us for anall-access passto Inside Value and you'll be privy to chief advisor Philip Durell's best picks, which collectively are beating the market by more than two percentage points. You'll also receive instructive lessons on valuation and company analysis. Give Inside Value a try; it's free for 30 days.

Think you're done with the Duel? You're not! Go back and read the other three arguments, and thenvote for a winner.

Fool contributorTim Beyersenjoys a Coke most afternoons but didn't own the stock or shares in any of the other companies mentioned in this story at the time of publication. Get the skinny on all the stocks in his portfolio by checking Tim's Foolprofile. 7-Eleven used to be a Stock Advisor pick. The Motley Fool'sdisclosure policyis like a cold Coke on a hot day.


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