Which company makes a better product Coke (NYSE:KO) or Pepsi (NYSE:PEP)? It's a debate that's likely to continue for years to come. That said, from an investment standpoint, there is a true No.1 cola, and that's Coca Cola (NYSE:KO). On the heels of its second-quarter earnings announcement, it definitely deserves a look.
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The Case for Coke
Thinking about Coca Cola from the top down, it's kind of tough to not like the company. After all, it has longevity on its side, having been around since before 1900. It also sells a variety of what I'd term wildly popular drinks - products beyond its flagship Coca Cola, like Diet Coke, Dasani and Minute Maid products - that are likely to keep selling very well for many years to come. The company sells products in more than 200 countries, and has been keeping investors' thirst for solid returns quenched as well by raising its annual dividend more than 40 consecutive times. (Read The Importance of Dividends to learn about a large part of shareholder returns)
More recently, its second-quarter numbers looked pretty tasty too. In the period ended July 3, Coke earned 92 cents per share excluding items and charges. That's appealing because analysts had been expecting "just" 89 cents. Meanwhile, it took in a little more than $8.27 billion in revenue. This was a bit disappointing because analysts had been expecting more than $8.66 billion. But I wasn't too put off because unit case volume also rose a respectable 4%.
Why Coke? Why Now?
Of course some of you may be wondering, why look at Coke now?
Very simply, if one believes that the economy is in the midst of a rebound as I do (even if it ends up being a slow one), then Coke may just be a good bet. An economic rebound and increased consumer confidence can lead to more spending on food and drink, which should benefit the company. And, while I don't think the stock is ultra cheap, it is a good value. It trades at about 16.5 times this year's estimate, which isn't bad given that it's expected to grow 7.7% per year in the next five years. It also has a solid dividend, with a forward yield of about 3.3%.
The Others?
What about Pepsi? Although I think Coke's the clear winner, I like this company too, and I think it could be a good long-term performer as well. Note that Pepsi trades at about 15.2 times this year's estimate. Dr Pepper Snapple (NYSE:DPS) could provide some upside potential as the economy rebounds as well. As a matter of fact, if it can find a way to make a new 52-week high (it's trading close now) I think a lot of investors would take notice and send the shares on a run.
Bottom Line
I'm a bull when it comes to Coke. I think its long operating history is something that can't be overlooked. I'm also excited by its recent earnings beat, its dividend and its reasonable price-to-expected earnings multiple. (Read more about beverage stocks in Parched for Profits? Try Beverage Stocks.)
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