Though it's been a good year for major market indices like the S&P 500 and the Nasdaq Composite, not all stocks have participated in this rally. Indeed, much of the market's gains have been driven by big tech and a huge rise in Tesla's (TSLA 15.02%) stock price. Alphabet (GOOG -2.87%) (GOOGL -2.97%), Microsoft (MSFT -1.13%), Nvidia (NVDA -0.45%), and Tesla shares, for instance, have risen 48%, 32%, 184%, and 100%, respectively, year to date. These big companies' shares played a key role in the S&P 500 and Nasdaq Composite's 13% and 26% respective gains during this period.
Since the market has relied heavily on certain large companies' share gains for its returns this year, some other stocks are starting to look comparatively cheap. One stock worth a closer look as the rest of the market flocks to tech is Coca-Cola (KO 0.32%). Down 9% year to date, shares appear compelling.
Coca-Cola stock's exceptional risk-reward profile
Sure, Coca-Cola might not offer investors opportunities to build generational wealth from its current size. The company's product distribution already spans the globe, reaching billions of customers. Further, it boasts dozens of billion-dollar brands and provides drinks for many of the world's biggest restaurant chains. There's only so much more the company can grow from here.
But it's this same scale that makes the stock fairly low risk. The company's established position as a key business partner to restaurants, grocery stores, and convenience stores means it is a cornerstone to many businesses' sales and profitability. Droves of businesses depend on Coca-Cola to sell high volumes of high-margin beverages with the unrelenting consistency their customers demand. Businesses need Coca-Cola -- and they need it in every type of economy.
A testament to Coca-Cola's lower risk profile relative to the overall market, the stock's average monthly beta over the last five years is 0.5. Measuring volatility, betas of one imply a stock's volatility is largely in line with the overall market. Betas greater than one mean shares are more volatile than the overall market. A beta of 0.5, therefore, means that Coca-Cola's stock is about half as volatile as the overall market. Coca-Cola's low beta is likely because the market simply has a higher degree of confidence in the company's durability compared to many other stocks.
So, with shares of this resilient business pulling back, the stock has become a very attractive investment relative to the perceived underlying risk.
An attractive valuation
But what about valuation? Though investors might expect to pay a significant premium to buy into this rock-solid business, shares are actually trading at a very reasonable. The stock currently has a price-to-earnings multiple of 24. This is higher than the S&P 500's P/E of 20 but well below the Nasdaq 100's at nearly 30.
Bolstering its valuation's appeal, investors who buy the stock today access a meaty dividend yield of 3.2%. Even better this is a growing dividend. The company has raised its dividend every year for 61 years straight. Its most recent increase amounted to approximately a 5% hike.
Coca-Cola's scaled distribution and resilient product mix, combined with its stock's attractive valuation and low level of volatility compared to the S&P 500 make this investment exceptionally compelling -- especially relative to the investment's inherent risk.
Coca-Cola stock currently offers investors what I would call a very good risk-reward profile.
