Thirsty for Profits, Coca-Cola Adopts Venture-Capital Strategy

NEW YORK (TheStreet) -- Warren Buffett once said, "Your premium brand had better be delivering something special, or it's not going to get the business."

With a global footprint that spans every continent, Coca-Cola (KO) is -- without a doubt -- a premium brand.

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That, however, has not stopped health-conscious consumers from bypassing Coke in favor of healthier drinks. The company has taken notice. And Coke's recent 17% stake taken in Monster Beverage (MNST) is one more example of the company's new venture-capital persona, adopted to quench Wall Street's thirst for growth. But will it work?

Coke stock closed Thursday at $40.18. Shares are down 1.2% on the year to date. Over the trailing 12 months, investors have thirsted for some good news. Since shares hit 2013 high of $42.97, Coke's performance have been flat -- to put it mildly.

The problem hasn't been Coke as much as it has been an industry in transition. Consumers are moving away from sodas in favor of healthier alternatives like tea and sports drinks, causing Coke to experience weak volumes and compressed margins.

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Coke's response; if you can't beat them, buy them -- and in some cases, buy a portion of them.

Coke's 17% position in Monster comes with a price tag of $2.15 billion while preserving Coke's right to increase that position by another 8%. This comes on the heels of the company having scooped up a 16% stake in Keurig Green Mountain (GMCR) back in May.

Coke representatives were not available to comment.

Coke's pattern of capital deployment into smaller beverage companies is noticeable. The question, however, is to what extent these deals, which (in some cases) include swapping assets, can increase investor's wealth.

While this deal does increase Coke's footprint in new growth categories, I also see it as an admission by management that Coke has 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, have failed to take off like the company expected. Coca-Cola Life was the company's answer against the "liquid candy" that sodas had become known for.

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