The iconic red can. The refreshing fizz. The familiar taste that evokes childhood memories and quenches thirst on a hot day. Coca-Cola (KO +0.00%) is a brand woven into the fabric of American life, and its stock has been a mainstay in many portfolios for decades.
But with the stock recently lagging behind the S&P 500 index, some investors might be wondering: Has the fizz gone flat? Is it too late to buy Coca-Cola stock? Is the beverage industry too stodgy to serve up wealth-building investments nowadays?
Hold on just a second before you pour your Coca-Cola investing thesis down the drain. It's true that Coca-Cola hasn't exactly been a rocket ship lately, gaining only 1% in a year compared to the S&P 500's 31% surge, but there's still plenty to like about this beverage behemoth.
NYSE: KO
Key Data Points
Coke by the numbers
First off, let's talk valuation. Coca-Cola is currently trading at a reasonable 25 times earnings and 6 times sales. Not exactly a bargain-basement price, but certainly not an outrageous ask for a company with such a dominant market position and consistent performance.
Speaking of performance, let's not forget that Coca-Cola has been steadily growing its sales at a 6.5% compound annual rate over the past five years. That's not exactly explosive, but it's certainly nothing to sneeze at for a company of its size and maturity.
And it's not like Coca-Cola is resting on its laurels, either. The company is actively exploring new avenues for growth, including leveraging the power of artificial intelligence (AI) for targeted promotions and marketing campaigns. Coke teamed up with ChatGPT maker OpenAI to launch a brand-boosting campaign named "Create Real Magic" last spring. By the end of summer, it had introduced several limited-edition flavors of Coca-Cola and Sprite, relying on AI to suggest interesting flavor combinations.
These short-lived efforts didn't exactly change the game, but they showcased Coca-Cola's willingness to tap into soaring market trends.
The soda titan is also dipping its toes into the booming energy drink market through a strategic partnership with Monster Beverage (MNST +13.58%). It's a lucrative partnership in which Monster has managed its own energy drinks alongside Coca-Cola's energy names led by the Full Throttle and NOS brands since 2014, all distributed by Coke's world-class global network of bottling partners. Coca-Cola also owns 19.6% of Monster's stock, giving the soft drink giant a significant financial interest in the energy drink specialist's business growth.
But perhaps the most refreshing aspect of Coca-Cola is its robust free cash flow of $9.5 billion over the last four quarters. The company is also strongly committed to returning that cash to shareholders. In the past year alone, the company has repurchased $1.7 billion worth of its own stock and paid out a whopping $8 billion in dividends. That combo hits the spot for income investors with a thirst for cash-sharing programs.
NASDAQ: MNST
Key Data Points
Don't hesitate to buy Coca-Cola stock in 2024
So, is it too late to buy Coca-Cola stock? I don't think so.
While past performance is no guarantee of future results, the company's strong fundamentals, reasonable valuation, and generous shareholder cash returns add up to plenty of tasty sparkle. The 3.2% dividend yield alone is reason enough to own this stock for the long haul -- just ask Warren Buffett.
Coca-Cola is a giant of its industry, as stable as solid rock, and an income-generating cash machine -- and you never know when the company might strike a chord with consumers over a new flavor or an innovative product line.
Long-term investors looking for a reliable and refreshing addition to their portfolio should consider grabbing a few shares of Coca-Cola. It's not the most exciting growth stock of 2024, but you can't really beat this sweet combo of safety and cash returns.
