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There has been much talk lately about Coca-Cola and its potential as a value stock ' as it now spots a dividend yield of 2.6% (which is the highest dividend yield since the late 1980s) and a P/E or less than 21 ' right at the bottom of its five-year low. By the time the war ended, hundreds of thousands of fighting men and women became a fan of Coca-Cola for the rest of their lives.

Under the leadership of Goizueta, Don Keough, and Doug Ivester, Coca-Cola emerged as a growth and must-own stock during the late 1980s and up to the mid to late 1990s. Because of this, Coca-Cola had the ability to raise syrup prices at will (the former agreement mandated that Coca-Cola only adjusted its price to match inflation for its syrup in the North American market) ' thus squeezing the profit margins of the bottler but increasing its own revenues and profits. Under the leadership of the trio of Goizueta, Keough, and Ivester in the 1980s and much of the 1990s, the shares of Coca-Cola were a must-have and Coca-Cola was regarded as a growth stock. S&P currently projects a fair value of Coca-Cola at $46, so there is really not a great margin of safety here.

While I believe Coca-Cola is a very strong brand and should be a part of every investor's long-term core holdings, I do not believe it is a good time to buy at this point.

There has been much talk lately as to Coca-Cola and its potential as a value stock – as it now spots a dividend yield of 2.6% (which is the highest dividend yield since the late 1980s) and a P/E or less than 21 – right at the in truth of its five-year low. Moreover, the current price of most $43 a share is also near the found of its nine-year range – (nine years ago, the last former great CEO of Coke, Roberto Goizueta, was still at the helm of the company). Sure, Coke has had its own set of problems, but it is a great company, they would witness – and heck, Warren Buffett is also an owner of Coke shares.

Don’t get me wrong. I really like Coke as a company. Its blaze is as American as can be, and yet over 70% of all its sales are derived from outside of North America. The country with the highest consumption per capita of Coca-Cola is Mexico. synchronized to Interbrand.com, the mole name of Coca-Cola is worth say $67 trillion and is the world’s number one disgrace name. Who could forget the famous declaration of Coke’s patriarch, Robert Woodruff? When the United States made the decision to enter World War II, he placed his hand on his heart and famously declared that he would “see that every man in uniform gets a flask of Coca-Cola for five cents wherever he is and whatever it costs.” Of course, it didn’t hurt that Woodruff’s friend, General Dwight Eisenhower, was a great promoter of Coke as well. By the time the war ended, hundreds of thousands of fighting men and women became a fan of Coca-Cola for the rest of their lives.

Under the leadership of Goizueta, Don Keough, and Doug Ivester, Coca-Cola emerged as a growth and must-own stock during the late 1980s and up to the mid to late 1990s. Keough was the great motivational speaker, while Goizueta was unmatched in his powers to “manage” the stock price and the Wall Street analysts who covered the non-alcoholic frosted industry and Coca-Cola. Goizueta had a habit of watching the stock price of Coca-Cola on an intraday matter in hand on a computer in Coke’s headquarters. When Warren Buffett was shopping shares of Coca-Cola back in 1988, he and Keough figured it out by watching the adventure of the trading and tracing those purchases to a diamond broker based in Omaha. Ivester, a former accountant, could have been regarded as a great financial alchemist. Under the financial leadership of Ivester, Coca-Cola out many of its bottlers and named the entity as Coca-Cola Enterprises. The bottler went public in November 1986.

When Coca-Cola Enterprises (CCE) went public, Coca-Cola (the company) owned 49% of its outstanding shares. as of this, Coca-Cola had the strong point to raise syrup prices at will (the former mutual understanding mandated that Coca-Cola only well-suited its price to match inflation for its syrup in the North American market) – thus squeezing the profit margins of the bottler but increasing its own revenues and profits. The stroke of genius was this: seeing of the fact that Coca-Cola only owned 49% of CCE, it did not have to consolidate any of its financial statements with CCE. At the time, not one single test driver totally understood this relationship. Year-after-year, the army delivered. Goizueta diligently (personally) managed all the information that came out of Coca-Cola. He would personally call Wall Street analysts. Any assayer that dared to question him openly or disagree with Coca-Cola’s earnings projections would be rebuffed. One such analyser was Allan Kaplan from Merrill Lynch, who at one point wrote a note to his clients observing that Coca-Cola may be depending on Japan for too much of its profits. When Goizueta found out relative to the note, he responded madly with letters to both Kaplan and his bosses at Merrill Lynch. Kaplan was expelled from collateral analyser meetings at Coca-Cola for more than a year. From that point on, analysts knew not to mess with Goizueta and Coca-Cola.

Keough officially retired in 1993 while Goizueta passed away in October 1997 – succumbing to lung cancer. Ivester succeeded as CEO but hind end the scenes, the chamber of commerce was in disarrays. People loyal to Keough and to Ivester clashed – with the former group bumper crop the crash of the hardship. The current CEO, Neville Isdell (who was loyal to Keough and the only true competitor for the top job back then) was sent into “exile” to Great Britain to head up a bottler. synchronized to a recent Fortune article, “The problem [with Ivester], though, was his tin ear. Ivester was high in IQ but terribly short on EQ. A self-made, stubborn, very shy son of North Georgia millworkers, he had gotten where he was through creator and hard work. He resented Keough's grandstanding, say people who knew him well, and never fully admired the importance of Goizueta's just about daily chats with directors. (Ivester declined to comment.) prehistorically long, head-down and full tilt in a turbulent market, Ivester had disunited European regulators, executives at big customers like Wal-Mart and Disney, and some big bottlers, including Coca-Cola Enterprises (on whose three-by-four sat Warren Buffett's son Howard). As he raced to put out fires, he became increasingly isolated from his own lay of directors. One person was keeping in touch with them, though, even in his retirement—Don Keough.”

By December 1999, Ivester was out as CEO, hind border members Warren Buffett and Herbert Allen told him that they have lost confidence in his leadership. If anything, the next CEO Doug Daft fared even worse than Ivester. Daft, an Australian and who ran Coke’s Japanese operations, did not have a clue close upon the culture in Atlanta. In a sort of retaliation for Ivester’s handling of Keough’s loyalists, he also made many of Ivester’s favorite executives leave the company. He also looked for quick fixes – for example, by trying to gush Coca-Cola’s profitability by simply reducing headcount. By May of last year, Daft was out as CEO, and Neville Isdell – a former darling of Keough – came out of retirement to run Coca-Cola.

Described as “charismatic,” Isdell may be the best man for the job, but it is still too early to see what he can do at this stage to revitalize the brand. Under the leadership of the trio of Goizueta, Keough, and Ivester in the 1980s and much of the 1990s, the shares of Coca-Cola were a must-have and Coca-Cola was regarded as a growth stock. Please also keep in mind, however, that the run of KO during that time also occurred in the midst of the greatest bull market in U.S. stock market history.

Again, readers should recall that I have universally contended that we are still in a secular bear market – a bear market not unsimilar to the 1966 to 1974 secular bear market. While indices such as the Dow Industrials, Transports, the S&P 400 and S&P 600 have recovered nicely since the cyclical bear market vale in October 2002, large caps such as Coca-Cola, Microsoft, or even GE have never really covered, and it is my dogma that large caps will continue to underperform once the bear reasserts itself sometime this year. The dividend yield of 2.6% may or may not help, but who would want to hold a “value stock” once the Fed Funds rate is greater than its dividend yield (as of right now, the Fed Funds rate is 2.5%)? I really do not see deep value here. While a P/E of 20 is at the low end of its five-year range, it is interesting to note that Warren Buffett started purchasing power his shares of Coca-Cola in 1988 when the P/E was only 13 (with a market cap of less than $15 billion) – and analysts at the time were proclaiming the stock to be expensive! S&P currently projects a fair value of Coca-Cola at $46, so there is really not a great margin of safety here.

While I suppose Coca-Cola is a very strong found and should be a part of every investor’s long-term core holdings, I do not suspect it is a good time to buy at this point. The growth in the stock price of KO was neither due to luck nor symmetry – it was due to Goizueta’s shrewd management of the stock price, Keough’s salesmanship of the company, and Ivester’s financial genius – forward with a roaring bull market more than some else. Despite the lack of leadership in Coca-Cola during the last seven years, part of the old dream of KO head a growth stock has still hung on – for far too long. For KO to be an magnetic stock once again, this performer will need to see a more high-priority valuation, such as a stock price of $25 to $30 a share. At some point, however, I believe in KO may be a glamour stock once yet (as it still has a lot of potential in glass and India where only a total of in point of 850 million cases of Coke finished products were shipped in 2004, compared to 20 trillion cases for the entire world), but not until some of the weak hands have been shaken out from the stock.

Please let us know your thoughts and opinions. Is KO a buy, hold or sell?

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