Why One Money Manager Doesn't Agree With My Coke Comments

Also, a doubleback on Sabratek and JJC confusion.
Author:
Publish date:

Wimp out Wednesday:

No Coke ... Pepsi:

That

back-and-

forth regarding

Coke

(KO) - Get Report

on last week's

Fox

show and in this column between

Cramer

, me and my boss,

Kansas

, (better known by

Fortune's

Andy Serwer

as Dust in the Wind ... don't ya love it!) prompted Mike Kagan, who runs the closed-end

Salomon Brothers Fund

, to opine in email that JJC and The Boss are right. "Coke has a great franchise, that can't be spoiled easily," he says. "But the multiple, at a 50% premium to the market, offers no upside if they turn things around."

That's why he likes

Pepsi

(PEP) - Get Report

instead. "Pepsi has finally gotten its act together," he says. "They spun off their most capital-intensive businesses, the restaurants into

Tricon

(YUM) - Get Report

and the bottling ops into

Pepsi Bottling Group

(PBG)

. They have honed down the company to one awesome business (

Frito-Lay

) and one great business (Pepsi).

"Frito-Lay is even a better business than Coke. Volume growth is as fast as Coke's -- 7%-8%. Volume growth in its category, snack foods, is as fast as soda growth -- the only food categories growing faster than GDP. It has a huge, 55%+ market share in the U.S., and an even higher market share internationally. It has all of Coke's strengths plus one. It has no No. 2 competitor.

"Pepsi has even managed to gain soda share with a new product introduction in the cola area --

Pepsi One

. And they are even behaving themselves by not messing up Coke's attempt to lift pricing in the U.S.

"Pepsi is trading at a discount to the market, or 1/3 less than KO. It's a screamer here."

And regarding this column's

comments on

Seagate

(SEG)

: "You've got it pegged," he says. "The stock has no downside here, only dead money risk ... I think that the key thing to look for is industry consolidation. If Seagate's aggressiveness on price forces

Western Digital

(WDC) - Get Report

or

Maxtor

(MXTR)

out of the game, then that is the signal to buy Seagate."

On the other hand, "If Western Digital or Maxtor is somehow able to raise money to keep on going, then Seagate is much less interesting, as the industry downturn can continue for quite a while."

Don't say you weren't warned.

Point of order:

An item yesterday noted that Charles K. Stewart, a large investor in

Sabratek

(SBTK)

, is also chairman of

Aware

(AWRE) - Get Report

. We've learned, thanks to a call from Aware, he

was

chairman until March.

Thanks for telling us! You wouldn't have known it unless you read the bio of every board member in the latest proxy, or happened to note who signed the most recent 10-K.

According to the proxy, from last April, Stewart had been chairman since April 1995. It didn't say that his term ended in March of this year. You only find that by reading the bio of John Kerr, which says Kerr became chairman in March of this year.

Still, go to a reputable financial site, like

Yahoo! Finance

, not to mention

TheStreet.com

, and who is listed as the chairman? Charles Stewart.

Why? Because Aware doesn't issue press releases about comings and goings on boards. Why not? Because, to paraphrase an Aware exec, it doesn't like putting out press releases every time somebody sneezes. (Would love to hear from other investor relations folks with their philosophies regarding press releases on board changes.)

Speaking of the Sabratek item:

The column mentioned that the

Kaufmann Fund

was a large holder of Sabratek as of April. So said Sabratek's proxy statement (which spelled Kaufmann with only one "n"). Kaufmann fund co-manager Hans Utsch, however, said Kaufmann sold the stock in December. Paper chase aside, Kaufmann would certainly like it to be known they do

not

own the stock -- as Utsch pointed out to my assistant Mark Martinez. Utsch continued that in December "we were short 10,000 shares at 25 1/2 dollars, and if you publish that, I'll deny that I ever said it."

Mark Finklestein, of Ithaca, NY, writes:

"You preface your comments on Sabratek by stating that 'it's borderline for this column to even write about. It has a market cap of less than $300 mil and a mere $65 mil in sales.' Fair enough. But consider some of the Net highflyers. Take

Inktomi

(INKT)

, for example. Yes, it has a market cap in excess of $5 billion. Its sales in the last year? A paltry $20 million! Yet untold barrels of cyberink have been shed over it. Who's to say what is worth commenting on, let alone investing in, in this brave new world of valuations?"

You'll note this column has never mentioned Inktomi!

Thanks, but ... :

Yesterday

JJC

passed along congrats in

his column regarding my coverage of

Nu Skin

(NUS) - Get Report

, which dropped 23% yesterday. Sorry, Jim, you got the wrong skin! You're thinking of

Safeskin

(SFSK)

.

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg also writes a monthly column for Fortune.