Coca-Cola Stock: Buy, Sell or Hold?

Coca colahis (K.O 0.74%) The stock is up about 20% over the past 12 months and is currently nearing an all-time high. Investors embraced the drinks giant’s shares as it thrived in an inflationary environment, while expectations of lower interest rates made dividends look more attractive.

So should investors buy, sell or continue to hold Coca-Cola stock right now?

Reasons to buy or own Coca-Cola stock

Coca-Cola might initially seem like a shocking investment, as soda consumption rates are declining in many developed countries. However, the company has steadily expanded its portfolio with more brands of fruit juices, teas, bottled water, sports drinks, energy drinks, coffee and even spirits to counter this secular decline. It also refreshed its flagship sodas with new flavors, healthier versions and smaller portions to appeal to younger consumers.

Image source: Coca-Cola.

In 2020, Coca-Cola’s organic sales fell 9% as restaurants and other businesses temporarily closed their dining locations. The foodservice sector’s decline offset its stronger retail sales at supermarkets and other retailers. However, the company’s organic sales rose 16% in both 2021 and 2022 as those headwinds dissipated. That figure rose another 13 percent in 2023 as Coca-Cola raised prices to counter inflation, and it expects growth of 9 percent to 10 percent this year.

These higher prices, along with layoffs and other cost-cutting measures, lifted Coca-Cola’s comparable operating margins from 28.7% (in both 2021 and 2022) to 29.1% in 2023 .The company’s comparable EPS rose 19% in 2021, 7% in 2022 and 8% in 2023. It expects 5%-6% growth this year, even as it faces heavy currency headwinds from a strong dollar.

These steady growth rates seem to make Coca-Cola a great stock to buy, hold and forget. It also pays an attractive forward dividend yield of 2.7% and is a Dividend King that has increased its payout for 62 consecutive years. That’s probably why Warren Buffett’s Berkshire Hathaway has patiently held Coca-Cola shares for the past 36 years and still owns a 9.1% stake in the company.

Reasons for selling or avoiding Coca-Cola

Coca-Cola might seem like a no-brainer buy, but it typically underperforms the market because it’s a defensive stock that thrives during bear markets but loses its luster during bull markets. Over the past 30 years, Coca-Cola’s stock has risen 527%, while S&P 500 increased by 1,090%. Over the past 20 years, Coca-Cola stock is up 224%, but the S&P 500 is up 410%. Even including reinvested dividends, Coca-Cola’s total return lagged the S&P 500’s total return in both periods.

So if you’re simply looking for a good long-term investment, it might make more sense to simply buy an index fund or an exchange-traded fund (ETF) that tracks the S&P 500 instead of Coca-Cola. It might also be smarter to invest in Berkshire Hathaway, which has outperformed both Coca-Cola and the S&P 500 by a wide margin over the past 30 years.

The other reason to avoid Coca-Cola stock is its valuation. At $72, it trades at 25 times forward earnings, which is quite a multiple for a company that grows its comparable earnings at an average single-digit rate. PepsiCofacing slower growth in its packaged foods segment, trades at 21 times forward earnings. Keurig Dr. Pepperwhich grows its profits at a slightly faster rate, has an even lower forward multiple of 19.

Therefore, Coca-Cola’s valuations could be inflated by its brand recognition and its reputation as a safe stock in a choppy market. However, its members sold more than twice as many shares as they bought in the last 12 months. They also haven’t bought any stock in the past three months as its stock has hit record highs.

So, is it a good time to buy, sell or own Coca-Cola?

If you already own Coca-Cola as part of a diversified portfolio, it doesn’t make much sense to sell the stock because the company is still built to last for generations as it generates consistent dividends. But if you’re looking for a new income stock to own right now, there are plenty of cheaper blue chip stocks that pay higher dividends.

So for now, I think Coca-Cola is a stock to hold patiently — but not one that should be aggressively bought or sold.