Coca-Cola (NYSE:KO) is perhaps one of the most underwhelming stocks within Warren Buffett’s Berkshire Hathaway (NYSE:BRK.B) portfolio. Apart from being a boring stock that’s gone flat in the past two years, the tides seem to subtly shift away from unhealthy beverages and toward healthier alternatives. Nonetheless, with new Coke flavors coming and intriguing marketing initiatives in place, the company seems to have what it takes to hit back at the new age of influential, potentially disruptive products. All things considered, I’m mildly bullish on the stock going into the second half of the year.
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One can’t help but wonder how much of Coke’s moat stands to be eroded as rivals like Celsius Holdings (NASDAQ:CELH) and Logan Paul’s Prime begin to challenge the soda heavyweight across the sports and energy drink categories. Though I wouldn’t go as far as to say Coke is losing its fizz, I think the company really needs its coming catalysts (new flavors, marketing innovations) to bubble up if the stock is going to experience a breakout.
The good news is the stock looks modestly priced (25.2 times trailing price-to-earnings vs. the 25.5 times non-alcoholic beverage industry average), with modest expectations ahead for the firm. And as the stock market looks to cool a bit off its all-time high, perhaps KO has what it takes to march higher without much outside help. Additionally, being a “boring” stock may work in its favor again, especially as the market terrain gets rougher as we inch closer to the 2024 U.S. Presidential Election.
With a 0.58 beta, there’s a lesser degree of market risk with the name. And the 3.13% dividend yield is sure to help make the turbulent ride just a little bit sweeter for investors. If you’re looking to derisk a bit, KO stock seems like an intriguing place to park your cash.
Catalysts That Could Bring Back the Fizz in H2 2024
For the latest quarter, Coke clocked in a solid result, which saw price increases that customers drank up willingly. Following the latest quarterly reveal, the management team hiked its 2024 organic sales growth forecast to 8-9%, up 2% from the prior estimate. That’s some pretty decent growth for a $271 billion consumer staples company.
As inflation dies down, the firm will have to tap into new growth levers if it wants to keep the quarterly beats coming. With new flavors, including the recent launch of Coca-Cola Spiced earlier this year, and intriguing new 20-ounce and 12-ounce form factors to fit any financial (or caloric) budget, Coke may have what it takes to stay strong in these last few months (hopefully) of elevated inflation.
Apart from spicy Coke, the company seems more than willing to double down on product innovation across the board. Canada Dry Fruit Splash, Sunkist Strawberry Orange, and Dr. Pepper Creamy Coconut are among the slate of new product offerings hitting shelves just in time for summer.
More remarkably, Coke seems to be tapping into the K-Pop (short for Korean Pop music) phenomenon to give its sales a nice jolt, with its limited edition K-Wave Zero Sugar soda landing in select markets back in February. Even if the product doesn’t taste incredible, my guess is that K-Pop fanatics will buy up the new Cokes like they’re going out of style. Indeed, limited edition collab types of products just seem to hit the spot among younger consumers.
Further, Coke seems to be doing a great job of tapping into new-age marketing (think social media) and customer engagement with its Coca-Cola Creations platform. With such a refreshing marketing campaign and a ton of new beverages trickling out of the creative pipeline, I’d argue that Coke hasn’t looked this primed for performance in quite a while.
Beyond the Fizz: Sports Drinks Represent an Opportunity to Expand Margins
It’s not just soda that could help power Coke stock higher from here. The company sees an opportunity to enhance margins as it looks to expand upon energy and sports drinks, a popular category that’s helped Celsius Holdings and Prime drinks really take off in recent years. At writing, CELH stock has more than tripled in the past two years. Indeed, these incredible gains for the mid-cap firm shine a light on the opportunity to be had in healthier energy drinks.
Though Coke’s own Coca-Cola Energy product faced an abrupt end in 2021, just over a year after it launched, the company’s nearly decade-old 16.7% stake in Monster Energy (NASDAQ:MNST) has been a monster performer. This investment, which has increased by more than 350% since its inception, is one that could pay dividends for many years to come.
Not only can new Monster products help jolt KO stock, but the talent over at Monster may just be able to help Coke make another foray into the space in the future. Given the pace of product innovation, I certainly wouldn’t count out a more energized push if Coke is looking to raise the bar on its growth in the distant future.
Is KO Stock a Buy, According to Analysts?
On TipRanks, KO stock comes in as a Strong Buy. Out of 15 analyst ratings, there are 12 Buys and three Hold recommendations. The average KO stock price target is $67.64, implying upside potential of 5.8%. Analyst price targets range from a low of $58.00 per share to a high of $72.00 per share.
The Bottom Line on Shares of KO
Coke stock may prove a great buy for the second half of the year as it looks to break out of a multi-year consolidation. Whether new flavors, intriguing marketing, or more efficient, streamlined operations are enough to cause the pop remains the big question. Either way, the stock looks undervalued as we head into what could be the most exciting summer in a while for cola lovers. Perhaps consumer staples aren’t so boring after all.
