Source: PaxForex Premium Analytics Portal, Fundamental Insight
The good news about markets hitting new lows is that investors can snatch up stocks that rarely sell off at incredibly low prices. Nearly every Dow Jones Industrial Average is in the red this year, with many stocks down 20% or more.
Oddly enough, Coca-Cola is not in that camp. So far this year, the beverage giant has outperformed the market, with a drop of just over 4% compared to the Dow average of 20%. That's thanks to impressive earnings projections and expectations that the company's business could survive any potential recession.
Given this big picture, let's consider whether Coca-Cola stock is a good buy right now.
In many ways, Coca-Cola was built for this moment. There was a surge in demand for most of 2022 as consumers shifted their spending to things like travel and experiences after two years of quarantine restrictions of one measure or another. The company's business was hit harder than PepsiCo's business in the early stages of the pandemic because the company gets more sales from beverages that can be bought to go. That focus laid the groundwork for a bigger rebound.
Organic sales were up 16% in the second quarter, compared with 9% growth for Pepsi. Coke got a boost from a general shift in demand related to the pandemic as well as effective growth initiatives. For example, the company entered new markets for sports hydration, energy drinks, water, and zero-calorie sodas.
The company is gaining market share through new releases such as Coke Starlight and is also expanding its position in categories such as flavored alcoholic beverages. "We are making targeted investments to unlock our growth program," CEO James Quincy said during a conference call in late July.
Coke is also thriving on profitability. Of course, profitability has declined because of rising costs and the impact of a stronger U.S. dollar. But the company is not struggling to raise prices, in part by offering smaller versions of its popular drinks. The company is also finding ways to cut costs while taking advantage of Coke's dominance in the industry.
In the most recent quarter, profits were up 4 percent despite these cost and exchange rate problems. This fact alone explains why Wall Street still loves this stock today.
The reasons to hold off on buying the stock are simple. Although the company's products are recession-proof, a downturn in consumer spending will inevitably affect sales and profits. Coke's global business is also sensitive to specific market issues, such as recent closures in China due to the pandemic and the war in Ukraine. A stronger dollar will put pressure on earnings probably through 2023.
But Coke also boasts one of the most robust growth profiles an investor can find in the consumer sector. Branded beverage sales are growing predictably and are not among the products that people give up during an economic downturn. Coke's financial strength and growing dividends also make it attractive to investors seeking stability.
If these factors fit your investing goals, there's no point in trying to delay buying the stock in hopes of finding an even better price. Trying to time the market can sometimes pay off, but more often than not, you will be left behind in the next market upturn.
The stock market is bearish at the moment, and that bias may last for a few weeks or months. However, there is a good chance that the Coke business will set new sales and earnings records in three years. This is a key factor that investors should prioritize when considering buying dividend stocks today.
While the price is below 59.00, follow the recommendations below
- Time frame: D1
- Recommendation:short position
- Entry point: 56.59
- Take Profit 1: 55.00
- Take Profit 2: 53.00
Alternative scenario:
If the level 59.00 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 59.00
- Take Profit 1: 60.00
- Take Profit 2: 61.00
