The Big Money Says to Buy Coca-Cola

One of the great maxims of traders and Wall Street pros is to follow the "smart money."

I'm not much for the thesis that institutional shoppers tend to make smarter investing decisions, but many of you who've read my ruminations on insider buying say you'd also like to know how the Big Money is betting. Your wish is my command.

Next up: Coca-Cola (NYSE: KO  ) . Are institutions bullish or bearish when it comes to the soda king?

Foolish facts

Metric

Coca-Cola

CAPS stars (out of 5)

****

Total ratings

5,608

Percent bulls

94.7%

Percent bears

5.3%

Bullish pitches

735 out of 794

Highest rated peers

Heckmann Corp., PepsiCo (NYSE: PEP  ) , Coca-Cola FEMSA

Data current as of Nov. 27.

For investors, Coke is synonymous with Warren Buffett. The Oracle of Omaha first bought shares decades ago, and as the table below shows, Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) continues to be the company's top institutional shareholder.

Fools see no reason to sell. Not only is the stock recommended by both our Motley Fool Inside Value and Motley Fool Income Investor services, but many of the everyday investors rating the stock in CAPS also like it for the very long term.

"US citizens purchase over 1 Coke product a day on average, while Chinese [citizens] purchase less than two a month, on average. Growth opportunities abound. Plus, any product that criminals ask for [in] their last meal, and [which] has been outstanding for a century is worth investing in," Foolish investor Eons wrote in September. I'm inclined to agree.

Institutional ownership history

Top Owners

2007*

2008*

2009*

Latest*

Berkshire Hathaway

200,000,000

200,000,000

200,000,000

200,000,000

BlackRock

14,215,056

15,190,490

123,715,138

107,856,478

The Vanguard Group

60,715,128

66,854,347

77,418,793

85,104,264

State Street Global Advisors

67,178,207

83,267,545

84,690,250

83,236,992

Capital Research and Management

116,392,000

103,873,000

129,783,300

78,618,900

TOP 25 TOTAL

710,692,368

773,783,206

915,745,844

900,823,023

Source: Capital IQ, a division of Standard & Poor's. *Indicates the number of shares owned.

And so, it would seem, do most institutional investors. They have good reason to bet on Coca-Cola. At current prices, the stock yields 2.7%. Management has also increased its per-share dividend payout by 9.7% a year over the past five.

But Eons is right; Coke's growth story doesn't begin and end at the dividend. North American sales accounted for just 27% of revenue last year. In China, rural consumers are only now discovering Coke, and they seem to like what they taste.

Add it up, and you have an increasing appetite for Coca-Cola shares among Big Money investors. Vanguard and State Street, in particular, have substantially increased their exposure to the soda king's stock.

Competitor and peer checkup

Company

Institutional Ownership

Insider Ownership

Coca-Cola

61.52%

4.98%

Dr Pepper Snapple Group (NYSE: DPS  )

95.54%

0.11%

Fresh Del Monte Produce (NYSE: FDP  )

64.67%

38.92%

Hansen Natural (Nasdaq: HANS  )

76.80%

1.67%

PepsiCo

67.93%

0.12%

Source: Capital IQ. Data current as of Nov. 27.

In terms of my soft drink choices, I've recently taken a liking to Dr Pepper, but in this table it's Coca-Cola that impresses me. Board member James Williams, chairman of Coke's finance committee, owns more than 4% of the shares outstanding. With that much capital at stake, he's unlikely to permit bookkeeping shenanigans.

At the same time, institutions own only 62% of Coke's outstanding shares. Plenty of buying room remains for Big Money investors seeking to combine a global growth opportunity with a generous yet safe dividend. I think they'll come around, which is why I've rated the stock a long-term buy in my CAPS portfolio.

Now it's your turn to weigh in. Would you buy Coca-Cola at current prices? Let us know what you think using the comments box below. You can also recommend other stocks for me to evaluate by sending me an email, or replying to me on Twitter.

Interested in more info on Coca-Cola? Add it to your watchlist by clicking here.

Berkshire Hathaway, BlackRock, and Coca-Cola are Motley Fool Inside Value picks. Berkshire Hathaway is also a Motley Fool Stock Advisor selection. Hansen Natural is a Motley Fool Rule Breakers recommendation. Coca-Cola and PepsiCo are Motley Fool Income Investor picks. Motley Fool Options has recommended subscribers open a diagonal call position in PepsiCo. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He owned shares of Berkshire Hathaway at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool owns shares of Berkshire Hathaway and Coca-Cola and is also on Twitter as @TheMotleyFool. Its disclosure policy is smarter than the average bear.


Read/Post Comments (2) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 30, 2010, at 12:58 AM, upndown100 wrote:

    I bought some shares around $54 in April. I agree with your analysis and since summer have been waiting for a pull back or dip to buy some more, but it's been a pretty straight upward trend to $63 today. My valuation skills are basic and I'm wondering if I should buy now or wait for a better opportunity. Your thoughts?

  • Report this Comment On November 30, 2010, at 4:14 AM, elliotriley wrote:

    I'm a bull with Coke. I hate to say this, but US companies will continued to be valued more and more based on overseas sales. I agree with the articles conclusion that Coke has a lot more room to grow.

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