Source: PaxForex Premium Analytics Portal, Fundamental Insight
While major market indices like the S&P 500 and the Nasdaq Composite have had a prosperous year, not all stocks have shared in this upward trend. The primary drivers of the market's gains have been the substantial growth in big tech companies and the remarkable surge in Tesla's stock price. To illustrate, Alphabet, Microsoft, Nvidia, and Tesla shares have witnessed year-to-date increases of 48%, 32%, 184%, and 100%, respectively. These large-cap companies have played a pivotal role in propelling the S&P 500 and Nasdaq Composite to respective gains of 13% and 26% during this period.
Given the market's heavy reliance on the gains of these prominent firms for its overall performance this year, some other stocks are now appearing attractively undervalued. One such stock deserving closer scrutiny, particularly as the broader market gravitates toward the technology sector, is Coca-Cola. With a 9% decrease in its share price year to date, Coca-Cola shares present an appealing opportunity.
Certainly, Coca-Cola may not present the opportunity for investors to amass generational wealth given its current size. The company's extensive product distribution already encompasses the entire globe, reaching billions of consumers. Moreover, it boasts numerous billion-dollar brands and supplies beverages to many of the world's largest restaurant chains. There are limits to how much further the company can expand from this point.
Nevertheless, it is precisely this vast scale that renders the stock relatively low in risk. Coca-Cola's well-established position as a crucial business partner to restaurants, grocery stores, and convenience stores positions it as a linchpin for the sales and profitability of countless enterprises. A multitude of businesses rely on Coca-Cola to consistently sell large volumes of high-margin beverages, meeting the unwavering demands of their customers. Businesses not only desire Coca-Cola, but they require it, irrespective of the prevailing economic conditions.
As a testament to Coca-Cola's lower risk profile when compared to the broader market, the stock's average monthly beta over the past five years stands at 0.5. In the realm of measuring volatility, a beta of one suggests that a stock's volatility closely mirrors that of the overall market. Betas exceeding one indicate stocks that are more volatile than the broader market. In contrast, a beta of 0.5 signifies that Coca-Cola's stock experiences roughly half the volatility of the overall market. This lower beta can be attributed to the market's heightened confidence in the company's resilience compared to many other stocks.
With the shares of this enduring business experiencing a pullback, the stock has emerged as an exceedingly attractive investment in relation to the perceived underlying risk.
Now, let's address the matter of valuation. While investors might anticipate paying a substantial premium to invest in this rock-solid business, shares are actually trading at a very reasonable price. Currently, the stock boasts a price-to-earnings multiple of 24. While this is higher than the P/E ratio of the S&P 500 at 20, it falls considerably below that of the Nasdaq 100, which stands at nearly 30.
Adding to its appeal in terms of valuation, investors who acquire the stock today are entitled to a generous dividend yield of 3.2%. What's even more enticing is that this dividend is on an upward trajectory. Coca-Cola has consistently increased its dividend for an impressive 61 consecutive years, with its most recent hike amounting to approximately 5%.
Taking into account Coca-Cola's widespread distribution network, robust product mix, attractive stock valuation, and lower volatility compared to the S&P 500, this investment emerges as highly compelling - especially when evaluated in relation to its inherent risk.
In sum, Coca-Cola stock presently offers investors what I would describe as an exceptionally favorable risk-reward profile.
As long as the price is below 58.50, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 56.91
- Take Profit 1: 55.50
- Take Profit 2: 53.50
Alternative scenario:
If the level of 58.50 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 58.50
- Take Profit 1: 60.00
- Take Profit 2: 61.00
