Investing in Coca-Cola Is the 'Real Thing'

NEW YORK (TheStreet) -- The East Coast took a pounding and a super-wet licking, but just like the old Timex watch commercials reminded us, "it takes a licking but keeps on ticking." In the aftermath of this natural disaster recovery efforts abound.

The toll of human suffering and inconveniences is beyond comprehension, but Americans have a way of pulling together in a mindset of cooperation and getting back to the art of living. They share what they have with neighbors and friends. To celebrate their survival or their relationships they pop open a can of Coca-Cola and toast to the hope of brighter days ahead.

CocaCola ( KO) had subdued earnings results in the third quarter, where their year-over-year earnings growth rose 3.9%. Not bad for a time period riddled with uncertainty and consumer angst all around the globe.

While experiencing healthy results in North America, its overseas business was dampened by China's anemic 2% increase in sales volume for the quarter, as compared to more than 10% a year earlier. Coke's CEO Muhtar Kent made comments in the conference call Oct. 16 suggesting that China's government has been focused more on trying to tamp down inflation and not on economic growth.

The Wall Street Journal reported Kent said, "As we look ahead to the next six months, it is reasonable to expect that China's continuing economic slowdown may have a short-term effect on our industry and our business."

Thus the leader of KO is guiding expectations downward for the fourth quarter. That may spell opportunity for investors wanting to add to existing stock positions. It also may present a good entry point for those interested in following one of Coke's long-term, big-time investors, Warren Buffett. His mega- holding company Berkshire Hathaway ( BRK-A) owns 400 million shares, almost 9% of the outstanding shares as of June 29.

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KO Chart KO data by YCharts

As you can see from the poignant 5-year chart above, KO's price-per-share has followed its price-to-earnings ratio which has been ascending back to its pre-2009 levels. With over a 23% operating margin trailing 12 months and a 26.42% return-on-equity, it's no wonder that company director Barry Diller directly owns about 1.76 million shares.

The 136-year-old company sells its products primarily under the Diet Coke, Fanta, Sprite, Coca-Cola Zero, Vitamin Water, PowerAde, Minute Maid, Simply, Georgia, and Del Valle brand names.

KO offers its beverage products through company-owned or controlled bottling and distribution operators, as well as through independently owned bottling partners, distributors, wholesalers, and retailers.

Rival PepsiCo ( PEP) has been pouring on increased competition. It is spending multi-millions to increase the purchase and consumption of its best-selling brands like Pepsi-Cola, Cherry Pepsi and Mountain Dew ("and them that refuse it are few" as the words of the old country song goes.)

Coca-Cola is working its own earnings growth strategies. As an example of how KO continues to churn out huge profits ($2.31 billion in the third quarter), it announced on Oct. 16 that Coca-Cola and French pharmaceutical giant Sanofi ( SNY) have a joint partnership to launch a new line of beverages to promote wellness and beauty.

The drinks, called Beautific Oenobiol, which is Sanofi's nutrition and beauty brand, will debut in France in pharmacies in autumn. The falling leaves should spell rising revenue for both companies, and KO should be more than able to sustain its $1.02 annual dividend, which represents a relatively high 52% payout ratio.

Shareholders won't be biting their nails or breaking out in a sweat about Coca-Cola's financial might. With more than $18 billion in total cash as of the most recent quarter, trailing 12 months operating cash flow of $10.51 billion and trailing 12 months levered free cash flow of $6.42 billion, it should remain both the "real thing" and the "real deal" for growth-at-a-reasonable price investors for years to come.

At the time of publication the author is long shares of KO.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Jim Cramer and Stephanie Link actively manage a real money portfolio for his charitable trust- enjoy advance notice of every trade, full access to the portfolio, and deep coverage of the latest economic events and market movements.

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