The following article is part of The Motley Fool's "Stock Madness 2005," a contest based loosely on the annual NCAA College Basketball Tournament, a.k.a. March Madness. From March 17 to April 4, our writers and analysts will engage in head-to-head competition with each other, advocating and arguing on behalf of 64 stocks we've selected as among the most interesting to Foolish investors. You, dear readers, are the fans and referees -- you'll read these exciting duels and then vote for the stock you think is the better investment... and should therefore move on to the next round of play. The company that survives six "games" will be our tournament champion, and its writer our most valuable "coach."

But, please, make no mistake -- "Stock Madness 2005" is a GAME!

Our writers are doing this for fun. They are enjoying the spirit of competition and the art of debate. They are delighting in the search for positives in the companies they've drawn... and negatives in the companies they're pitted against. They are NOT necessarily recommending these stocks as the ones they believe in above all others. As ever, YOU must decide whether the stocks we're writing about -- winners and losers -- are deserving of your investment dollars.

UPS (NYSE:UPS)
 Atlanta , Ga.
$71.90
 52-week low-high: $68.55-$89.11
 $80.4 billion market cap

By Nathan Slaughter

After dispatching its first two opponents in this tournament with relative ease, UPS fans may be in for a nail-biter in this contest, which involves two old-school companies whose headiest growth days are likely behind them. Still, when the final buzzer sounds, I expect that the section of the crowd clad in brown to be cheering.

Both Coca-Cola and UPS take the court as the undisputed worldwide champs in their respective leagues. On any given day, more than 1.3 billion servings of Coca-Cola products are consumed, and some 14 million packages are delivered via UPS. Furthermore, both have a single principal domestic adversary to contend with -- Coke has Pepsi; UPS has FedEx. Finally, both enter the game trading at a forward multiple of around 19.

Any other similarities, though, end right there.

For starters, while gradual economic expansion is leaving businesses and consumers alike clamoring for more shipping -- UPS delivered 300,000 more packages per day last year than in 2003 -- the growth of syrupy sugar-water has all but flatlined. Coke reported anemic unit case volume growth of 2% last year -- about half of its already reduced targeted goal. Non-carbonated beverages have been the industry's brightest hope, but Pepsi maintains a decided lead in that category, boasting a 46% market share to Coke's 28%.

So while UPS continues to cut into FedEx's core overnight territory, Coke has been busy trying to peddle C2, new Diet Coke, and any other concoctions that might stimulate some interest. And while UPS reported a 17% jump in net income last year on revenues that climbed by double digits, Coke fought to barely keep its top line above water: It lost nearly a full point in market share in a market that trudged just 1% higher.

Coke isn't going anywhere fast. In fact, take a quick look at this chart -- Coke hasn't gone anywhere but down for the past nine years. Ripe for a rebound, you say? People also said that last year, and then they watched forlornly as the stock sank another 17.9% to become one of the Dow's worst performers. With growth at a virtual standstill, why should next year be any different?

Here's the bottom line: Coke is a venerable company, but people are not buying any more of its soft drinks, particularly in North America. They are, however, shipping more packages than ever through UPS -- a record 3.6 billion last year. You don't have to take my word for it. The Motley Fool provides some of the best color commentary in the business. Check out some of these Foolish instant replays of Coke's sloppy play. (The titles alone should be a good tip-off.)

Fool contributor Nathan Slaughter owns none of the companies mentioned.

Coca-Cola (NYSE:KO)
 Atlanta , Ga.
 $41.80
 52-week low-high: $38.30-$53.50
 $100.7 billion market cap

By Rich Smith

Welcome to Round 3, folks. Coke vs. UPS. And Brown is going down.

Fact of the matter is, Brown loses this contest from the get-go, because Coke has UPS beat in pretty much any category you can name. Just take a look at the numbers:

Coke UPS Advantage Coke
Profit margin 22.1% 9.1% Coke is 143% more profitable
Return on equity 32.5% 21.7% Coke is 50% more efficient
Dividend yield 2.7% 1.8% Coke pays you 50% more
Trailing P/E 20.7 24.6 Coke is 16% cheaper
Price-to-FCF 19.1 25.2 Coke is 24% cheaper

Everywhere you look, Motley Fool Inside Value recommendation Coke wallops UPS. Coke is more than twice as profitable. Coke's much more efficient. And while UPS pays its shareholders less than the average S&P dividend, Coke pays nearly a full percent more.

Really, the only place where UPS has the bigger numbers is on the price tag. Coke beats Brown on a P/E basis, and if you strip out all the accounting nonsense that distorts real cash profitability and instead focus on the companies' respective cash flows, you'll see that Coke's an even better bargain. In fact, it hasn't been possible to buy Coke at this cheap a price, relative to the company's massive $5.2 billion in free cash flow, for 15 years. Which is precisely why today, large-cap value hunters should be chanting "Coke is it" and buying Coke stock with abandon.

When you've got the opportunity to own a 120-year-old franchise that has crushed the S&P's returns over its lifetime, it doesn't pay to wait. History shows that Coke's price simply doesn't get much better than this.

As for UPS, not only does Brown lag Coke in every category named above today. It also faces a discouraging future. UPS quite literally lives and dies on the price of gasoline. And this era of $50-a-barrel oil that we're entering will do Brown's numbers no good.

To add insult to injury, just as UPS fights to remain profitable in the face of high gasoline prices and cutthroat competition from FedEx and DHL, its own workers have up and demanded a 26% pay raise! UPS now faces the unhappy choice of either (a) caving in to its union's demands or (b) suffering a strike that, according to a recent union poll, could cause as many as 70% of UPS's biggest clients to switch their business to FedEx.

Investors should pity UPS -- not buy it. For true investing refreshment, obey your thirst for value. Choose Coca-Cola.

Fool contributor Rich Smith has no position, short or long, in any company mentioned in this article.

Rebuttal
Sure, Coke trades at a cheaper trailing P/E, but I'm much more interested in tomorrow than in yesterday. Coke's rather exorbitant PEG ratio of 2.5 -- indicative of the company's weak earnings outlook -- doesn't compare so favorably with the 1.5 at UPS. Rich mentions the cutthroat competition that UPS faces from FedEx, but he neglects to point out that Coke has lost market share to Pepsi in four of the past five years.

Coke has given the new name "Zero" to its Diet Sprite, which is fitting, because that is precisely the level of earnings growth that analysts are forecasting for Coke this year. The best case that can be made for the company is that it's cheap, but without a catalyst, I wouldn't expect to see a "New Coke" emerge anytime soon. --N.S.

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