Coca-Cola (NYSE:KO) is one of Warren Buffett‘s favorite stocks. You might have seen photos of Buffett drinking a refreshing Coca-Cola soda. That’s not the only reason I’m bullish on KO stock, though. Coca-Cola shares recently went down for an absurd reason, so contrarians should definitely pay attention.
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Coca-Cola is known worldwide for its popular non-alcoholic beverage and snack brands. I’ll admit that Coca-Cola’s food products taste good but aren’t necessarily ultra-healthy and could cause people to gain weight.
On the other hand, Buffett is still in pretty good shape for his age, even though he has supposedly consumed Coca-Cola products for many years. Is Coca-Cola in good shape, though? I’d say the company will be just fine, even though some financial traders have been in panic-selling mode recently.
KO Stock: Traders Find Defensive Stocks Offensive
Buffett likes it when a rock-solid company such as Coca-Cola goes out of favor among short-term traders. After all, this is how opportunities arise. The market will rotate in and out of stocks and sectors, and nimble investors can ride the cycles from bottom to top.
Can you find a time when KO stock went down but didn’t recover eventually? No way! Nevertheless, stock traders in 2023 have treated Coca-Cola as if the company is about to file for Chapter 11 bankruptcy protection. To a certain extent, this is happening because many defensive stocks and sectors are getting hammered. Just take a look at utilities stocks and you’ll see what I’m talking about.
Coca-Cola is in the consumer staples category, and some folks would rather get a 4-5% risk-free yield from a 10-year Treasury bond than take their chances with KO stock and get an annual dividend yield of 3.47% (which beats the sector average dividend yield of 2.125%, by the way).
Coca-Cola has been raising its dividend payouts every year for quite a while; this is something that solid businesses tend to do. Meanwhile, if the Federal Reserve cuts interest rates, Treasury bond investors can say goodbye to that 4%-5% risk-free yield. So, if you’re really thinking ahead, holding shares of Coca-Cola can be just as good as buying government bonds and maybe even better.
You’ll be Shocked at the Reason Coca-Cola Stock Went Down
In recent days, beyond the rotation out of defensive stocks, there’s another reason Coca-Cola stock declined. I think you’ll be amazed at the reason, and if you’re a contrarian investor, you’ll likely see an opportunity here.
Reportedly, Walmart (NYSE:WMT) issued a warning that weight-loss drugs, including Novo Nordisk’s (NYSE:NVO) weight-loss drug Ozempic, are growing in popularity. Consequently, Walmart warned that these weight-loss drugs are negatively impacting food sales. There was also a report from BMO Capital Markets analyst Evan David Seigerman that U.S. weight-loss medication revenue could reach $70 billion, while the global market for these medications could reach $100 billion by 2035.
This is one of the silliest arguments to sell KO stock that I’ve ever seen. First of all, I have no doubt that many Americans will continue to eat junk food while taking weight-loss medication. Then, they’ll abandon those medications because they’ll prematurely conclude that they don’t work, and they’ll continue to eat junk food.
Besides, weight-loss drugs have been around for a while. Yet, suddenly people are concerned about their impact on junk-food purveyors like Coca-Cola. I’m old enough to remember that Americans continued eating unhealthy food and beverages through the aerobics and fitness craze of the 1980s, as well as through the low-carb and keto trends of the 2000s.
Now, weight-loss drugs are supposed to be a big threat to Coca-Cola. I’m sure the company will survive and generate plenty of sales regardless of Ozempic.
Is Coca-Cola Stock a Buy, According to Analysts?
On TipRanks, KO comes in as a Strong Buy based on nine Buys and two Hold ratings assigned by analysts in the past three months. The average Coca-Cola stock price target is $70.91, implying 33.2% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell KO stock, the most profitable analyst covering the stock (on a one-year timeframe) is Nik Modi of RBC Capital, with an average return of 10.12% per rating and an 83% success rate. Click on the image below to learn more.
Conclusion: Should You Consider Coca-Cola Stock?
Want to be like Buffett? Be greedy when others are fearful. Currently, some short-term stock traders are fearful about Coca-Cola’s future prospects because of weight-loss drugs.
This is a textbook example of how to buy what the fearmongers are trying to get you to sell. Defensive names like Coca-Cola should be back in favor at some point. Hence, I invite Buffett-like contrarians to consider KO stock as an income-generating long-term holding.
