EPIC Insights,this usually forces me to consider lesser-known companies or those facing serious business problems. However, I occasionally find an opportunity to purchase a solid company at an attractive price level. This week I have found such an opportunity with Coca-Cola ( KO).
KO possesses one of the best-known brand names in the world. It offers a ubiquitous product that is sold around the globe. Over the years, its business has been run well, as the balance sheet is conservatively managed, capital is efficiently deployed and turnover ratios continue improving. Having followed KO stock for a decade, I never felt the price was at the right level to justify purchasing the shares. From a valuation perspective, the market had always assumed KO could achieve long-term growth rates in excess of 10% and had decided a price-to-earnings multiple above 20 reflected its business prospects. While I admire the business prospects and strong economic moat, I believe the long-term growth rate should be closer to 6%. With such a growth rate and a variety of valuation models, I feel KO should trade near $52. Applying a 20% margin of safety, I derive an entry point of $42 per share. With KO trading near its 52-week low, the price has finally reached a level that I find attractive. Having waited so long to buy the shares, I will take advantage of this opportunity and recommend KO as this week's fundamental trade.