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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 prevalent 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 gap of its five-year low. Moreover, the current price of roughly $43 a share is also near the sacrificial 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 attest – and heck, Warren Buffett is also an owner of Coke shares.

Don’t get me wrong. I really like Coke as a company. Its weld 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. consonant to Interbrand.com, the defile name of Coca-Cola is worth some $67 trillion and is the world’s number one disparage 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 spunk 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 technique to “manage” the stock price and the Wall Street analysts who covered the non-alcoholic the cup industry and Coca-Cola. Goizueta had a habit of watching the stock price of Coca-Cola on an intraday problem on a computer in Coke’s headquarters. When Warren Buffett was marketing shares of Coca-Cola back in 1988, he and Keough figured it out by watching the tactics of the trading and tracing those purchases to a real estate 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. seeing as how of this, Coca-Cola had the supply to raise syrup prices at will (the former concord mandated that Coca-Cola only qualified 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: as 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 pilot totally understood this relationship. Year-after-year, the associates delivered. Goizueta cannily (personally) managed all the information that came out of Coca-Cola. He would personally call Wall Street analysts. Any researcher that dared to question him openly or disagree with Coca-Cola’s earnings projections would be rebuffed. One such tester 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 with respect to the note, he responded mindlessly with letters to both Kaplan and his bosses at Merrill Lynch. Kaplan was prohibited from concomitant psychiatrist 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 croup the scenes, the convention was in disarrays. People loyal to Keough and to Ivester clashed – with the former group guise the smashing 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. harmonious to a recent Fortune article, “The major 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 mind and hard work. He resented Keough's grandstanding, say people who knew him well, and never fully valued the importance of Goizueta's approximately daily chats with directors. (Ivester declined to comment.) in front of long, head-down and full tilt in a turbulent market, Ivester had separated European regulators, executives at big customers like Wal-Mart and Disney, and some big bottlers, including Coca-Cola Enterprises (on whose room sat Warren Buffett's son Howard). As he raced to put out fires, he became increasingly isolated from his own stock exchange 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, later lathing 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 in the vicinity 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 give a write-up 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 everywhere 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 stout heart in October 2002, large caps such as Coca-Cola, Microsoft, or even GE have never really covered, and it is my assent 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 marketing 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 repose in Coca-Cola is a very strong cast and should be a part of every investor’s long-term core holdings, I do not imagine it is a good time to buy at this point. The growth in the stock price of KO was neither due to luck nor confluence – it was due to Goizueta’s shrewd management of the stock price, Keough’s salesmanship of the company, and Ivester’s financial genius – abeam with a roaring bull market more than either else. Despite the lack of leadership in Coca-Cola during the last seven years, part of the old dream of KO under the sun a growth stock has still hung on – for far too long. For KO to be an luxurious stock once again, this master craftsman will need to see a more gripping valuation, such as a stock price of $25 to $30 a share. At some point, however, I understand KO may be a glamour stock once (as it still has a lot of potential in parchment and India where only a total of respecting 850 million cases of Coke finished products were shipped in 2004, compared to 20 infinitude 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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