The question isn't if a bear market will happen; the question is when the next bear market will arrive. Given the lofty levels of the S&P 500, it is reasonable for investors to suspect the answer is sooner rather than later.
If you are concerned, consider investing in Coca-Cola (KO +0.76%).
Here are three reasons this consumer staples company could be a good addition to your portfolio today.
1. Coca-Cola operates in an attractive sector
Before digging into Coca-Cola's business, it is notable that it falls within the consumer staples sector.
Consumer staples are products that are purchased regularly and typically have relatively low costs associated with them. Think products like deodorant, toilet paper, food, and beverages. You aren't about to stop buying any of these things regardless of the economy or the stock market.
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There is a risk of trade-down with consumer staples products. For example, Coca-Cola's beverages tend to be at the high end of the sector. That makes them premium products.
Consumers could save money by buying store-brand soda instead of a Coke. However, another key feature of consumer staples is that they tend to have material brand loyalty. People tend to like the products they buy, and so they continue to buy them regardless of what's going on in the world.
In the case of Coca-Cola, the company's products end up being an affordable luxury. Sure, trading down could save money, but probably not enough to offset the enjoyment derived from drinking a Coke. So at a basic level, the business is resilient to recessions and bear markets.
2. Coca-Cola is a very well-run business
Coca-Cola isn't just another player in the beverage sector. It is the world's single most important nonalcoholic beverage company. With a market cap of $300 billion, it ranks as the fourth largest consumer staples business in the world despite only making one basic product.
The company has impressive distribution, marketing, and innovation skills that rival those of any consumer staples peer. It is also large enough to act as an industry consolidator, acquiring small but growing brands to complement its already impressive roster of iconic brands. It's one of the best-run companies in the world based on its impressive history.
NYSE: KO
Key Data Points
The proof is it status as a Dividend King, with more than six decades of annual dividend increases. A company can't build a track record like that by accident; it requires a strong business model that is executed well in good times and bad.
The last six decades have included numerous bear markets and recessions. Coca-Cola has survived every one of them.
3. Its stock is reasonably priced
The last reason to buy Coca-Cola right now is its valuation. The stock's price-to-sales ratio is slightly above its five-year average. But the price-to-earnings, price-to-book-value, price-to-cash-flow, and price-to-forward-earnings ratios are all below their five-year averages.
Coca-Cola is not a value stock; it is best seen as fairly priced to a little cheap. However, it's a high-quality company that could be a strong entry point for more-conservative investors. Add in the roughly 2.9% dividend yield, and the story gets even better. If there's a bear market, you can focus on the reliable dividend income you are generating instead of the price of the stock. That should make sitting still through a downturn much easier.
Coca-Cola is a resilient business and investment
There's no way for investors to completely avoid bear markets; they will always be a part of the stock market. Preparing for the inevitable is really all you can do. Right now, buying a company in a resilient sector, with a strong business, and a valuation that's reasonable to attractive could be the right move if you are worried that a bear market is on the way.
