Investing in Coca-Cola: 3 Pros, 3 Cons

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By Tom Taulli, InvestorPlace Writer

NEW YORK ( InvestorPlace) -- Coca-Cola's ( KO) cash machine continues apace. In its latest quarter reported earlier Tuesday, the company posted net income of $2.8 billion, or $1.20 per share. This was up from last year's $2.37 billion, or $1.02 per share.

For the past couple of years, Coca-Cola's stock price also has been a winner. In 2009, the return was 29.3%, and a year later, it was 18.5%.

However, as for 2011, things have slowed down, with the shares gaining only 3.7%. Perhaps the valuation is a bit too high? Or can Coca-Cola bring another double-digit year for shareholders? Here's a look at the pros and cons:

Also See: 9 Great Investment Ideas for a Crazy Market.

Pros

Barriers to entry. When it comes to distribution, Coca-Cola has one of the most extensive footprints. Its beverages are sold in more than 200 countries through bottling operations, partners, wholesalers and retailers. It's actually the world's largest beverage distribution system, which accounts for 1.7 billion servings every day.

Brand portfolio. The company has more than 500 beverage brands, with four of the five top in the world, including Fanta, Sprite and, of course, Diet Coke.

But Coca-Cola continues to invest huge sums into marketing, and it also has been getting more aggressive with new media like Facebook and Twitter.

Emerging markets. Coca-Cola is positioned nicely to benefit from the growth in countries like China, Russia and Mexico. There also have been investments in Africa. The good news is that Coca-Cola has the cash flows -- and expertise -- to make the right moves in these markets.

Consider that in the latest quarter, volume increased by a substantial 21% in China. The company also made strong gains in Latin America.

Cons

North America. This segment continues to be a drag. In fact, it looks like the weakness will continue because of high unemployment in the U.S.

The competition also is intense, especially from Pepsi ( PEP).

Also See: 5 Retail Stocks to Sell

Commodities costs. There is likely to be continued pressure from rising input costs, such as from sugar and cocoa. Interestingly enough, Coca-Cola's purchase of its major bottler in the U.S. likely will exaggerate this.

The company was able to increase overall prices about 1% to 2% in the quarter. And it hopes to increase this to 3% to 4% in the second half of the year. However, there is certainly a risk that consumers will reduce their purchases.

Also See: 4 Disturbing Charts to Watch

Consumer changes. There has been a general move away from carbonated beverages in North America because of health concerns. The trend has been gradual, but it is an issue. At the same time, there is a risk of the same problems in other countries.

Verdict

With its powerful distribution and mega brands, it should be no surprise that Coca-Cola is a top holding for Berkshire-Hathaway's ( BRKA) Warren Buffett. And, while there is pressure in the North American market, the fact remains that Coca-Cola should benefit from the long-term growth trends in emerging markets.

In addition, Coca-Cola has a great record rewarding its shareholders and has raised dividends for 49 consecutive years. The current yield is 2.8%.

Coca-Cola remains a solid holding as the pros outweigh the cons on the stock.

Tom Taulli's latest book is All About Short Selling and he has an upcoming book called All About Commodities. You can find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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