Source: PaxForex Premium Analytics Portal, Fundamental Insight
Coca-Cola investors experienced a challenging year in 2023, with the beverage giant's shares declining amidst a 22% rally in the S&P 500. This performance ranked Coke as the sixth-worst-performing stock in the Dow Jones Industrial Average.
However, the outlook for 2024 appears more promising for shareholders, supported by several compelling factors.
Emphasis on Volume
Coca-Cola's stock faced challenges alongside other Dow consumer staples giants like Procter & Gamble in the previous year. Despite this, the beverage leader demonstrated robust operating momentum. Unlike P&G, which relied solely on raising prices to drive sales in 2023, Coca-Cola achieved a balanced approach, witnessing an 11% surge in organic revenue in the last quarter. This growth stemmed from a combination of increased sales volumes and rising prices. In contrast to P&G's 7% overall growth, Coca-Cola strategically gained market share in its on-the-go beverage niche and experienced substantial growth in core segments such as sparkling sodas. Additionally, the company found success in non-traditional beverages, including energy drinks, sports drinks, and waters. CEO James Quincey highlighted the positive performance, stating, "We delivered an overall solid quarter and are raising our full year... guidance" during an investor update in late October.
Cash Returns
Shareholders can anticipate enhanced returns through direct cash inflows in 2024. In the last quarter, Coca-Cola raised its earnings outlook, projecting an 8% increase for the entire 2023 year. The potential for even higher gains exists if cost inflation continues to moderate, following the trend observed since late last year.
This surge in profits is expected to support the forthcoming dividend increase, anticipated to be announced in mid-February. Notably, Coca-Cola has consistently raised its dividend for the past 60 years, including a 5% boost early in the preceding year.
Despite the recent underperformance of the stock, investors stand to benefit from a higher yield by acquiring Coca-Cola shares at current prices. Presently, investors can enjoy a 3.1% yield, in addition to potential capital appreciation. This yield surpasses those offered by competitors, with Coca-Cola's 3.1% outpacing Procter & Gamble's 2.5% yield and PepsiCo's 2.9% yield.
Price Check
The "Dogs of the Dow" strategy, a popular approach among investors that focuses on purchasing the prior year's worst-performing Dow stocks, has its merits, and Coca-Cola stands out as a compelling candidate within this context. The Dow is home to robust companies like Coca-Cola, which, starting the new year at a discounted rate, often present a favorable opportunity for a rebound. Moreover, these underperforming stocks typically offer higher dividend yields.
Adding to the list of reasons to favor Coca-Cola in 2024 is its relatively affordable price. Currently trading at 5.7 times annual sales, this is a decline from the over 6 times sales observed in early 2023. While Pepsi may be available at approximately half the price, an investment in Coca-Cola brings added advantages, including higher income, swifter growth, and significantly superior profit margins compared to Pepsi. These outstanding metrics position Coca-Cola to potentially deliver superior returns for investors throughout 2024 and beyond.
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As long as the price is above 58.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 60.21
- Take Profit 1: 62.00
- Take Profit 2: 64.00
Alternative scenario:
If the level of 58.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 58.00
- Take Profit 1: 57.00
- Take Profit 2: 56.00
