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TheStreet Open House

Coca-Cola's Pause Can Refresh Your Profits

Stocks in this article: KO PEP DPS YUM MCD GMCR


Somehow the Street ignored the quicker-than-expected uptick and the balance Coca-Cola showed in these important markets. In an unpredictable global economy, no less! As we've seen in reports from global brands like Yum! Brands (YUM) and McDonald's (MCD), China's economic conditions have taken a toll. But Coca-Cola's brand persevered. What does that tell you?

[Read: What Is the Problem With Adult Dental Insurance Plans on Healthcare.gov?]

It goes back to Link's point about the company's global footprint. And it's narrow-minded to judge Coca-Cola solely based on its North America performance. With strategic product mixes and promotional shifts, management has figured out ways to offset weakness in certain areas by finding strengths in others.

Along those lines, management deserves credit by having not shied away from the "liquid candy" situation. They have, instead, gone out of their way to educate consumers about the health effects of its products. And they've done this, while at the same time promoting regular exercise. So with some modest sequential growth numbers, there's no evidence that Coca-Cola is seeing the so-called "unhealthy effects" of the new health-conscious consumer, assuming the informational push is working.

This company has not lost its innovative edge. New products such as Coca-Cola Life, which uses a blend of sugar and plant-based Stevia as a natural sweetener, is a perfect example of how innovative the company can still be. And I haven't even mentioned the company's recent joint-venture with Green Mountain Coffee (GMCR).

These initiatives (among others) helped Coca-Cola increase its global market share in non-alcoholic/ready-to-drink beverages for the 26th consecutive quarter. Coca-Cola isn't going anywhere. So it really comes down to how much patience you have in management to do what it is capable to doing to return to growth. And I don't see anything standing in the company's way of delivering the long-term profits investors have come to expect.

With the stock trading at around $37 with a P/E of close to 20, these shares aren't cheap. But there's always been a good reason for this. And they certainly won't get any cheaper given that they're already down 13% over the past year. On the basis of long-term margin expansion and 3% to 4% volume growth, these shares should trade at $45 by the second half of the year.

At the time of publication, the author held no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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