Coca-Cola is one of the world’s most recognized and largest soft drink companies in the world. The U.S. company is widely known for its flagship product, the soft drink that bears its name. However, Coca-Cola is not only limited to the production of soda, but is also involved in the production and marketing of a wide variety of beverages, including bottled water, juices, teas, energy drinks, and more.
Over the years, it has expanded its global presence and has become a multinational company operating in virtually every corner of the planet, serving millions of consumers with its wide range of products. However, not everything has been rosy for the multinational over the past week.
Coca-Cola stock going down
Coca-Cola shares had their worst day in 17 months due to concerns about consumer spending. This occurred along with a drop in consumer staples stocks and the market in general, due to fears of high interest rates and a slowdown in the labor market that could affect the U.S. economy.
Coca-Cola shares fell 4.1%, their biggest drop since May 2022, and also hit their lowest level in almost two years. This situation is related to a trend of lower consumption in the industry and changes in consumer behavior, mainly due to concerns that weight loss drugs, such as Ozempic and Wegovy, are leading consumers to reduce their food purchases and caloric intake.
For this reason, Walmart’s U.S. CEO, John Furner, told Bloomberg that these drugs are generating a “slight backlash in the shopping basket,” “just fewer units, slightly fewer calories,” he added. This news triggered a massive sell-off in the beverage industry, with Coca-Cola falling 4.8%, PepsiCo losing 5.2%, and other companies in the sector also experiencing significant drops in their shares.
Similarly, BMO Capital Markets analyst Evan David Seigerman presented an analysis in which revenues from weight loss drugs in the United States could reach $70 billion. In comparison, the global market for these drugs could reach $100 billion by 2035. It is worth noting that weight loss drugs have been around for a long time. However, suddenly people are concerned about their impact on junk food suppliers like Coca-Cola. That’s why Warren Buffet, the investment specialist, sees an opportunity.
Is Coca-Cola’s downturn a cause for concern?
Warren Buffet finds opportunities when solid companies like Coca-Cola temporarily fall out of favor in the market. For him, this is the perfect time to invest, as market cycles allow nimble investors to take advantage of fluctuations in stocks and sectors.
“The best chance to deploy capital is when things are going down.“
Warren Buffett
Despite occasional declines in Coca-Cola shares, there is no evidence that the company has failed to recover in the past. However, in 2023, stock traders are treating Coca-Cola as if it is on the verge of bankruptcy, which is partly due to pressure on defensive stocks and sectors, as seen in the utilities sector.
Coca-Cola belongs to the consumer staples sector and offers an annual dividend yield of 3.47%, beating the sector average of 2.125%. In addition, the company has demonstrated its strength over time by regularly increasing dividend payments.
In a scenario in which the Federal Reserve cuts interest rates, Coca-Cola stock may be an attractive alternative to investing in Treasury bonds, offering similar or even higher yields over the long term.
Is it a good time to buy Coca-Cola stocks?
Analysts rate the stock with a “strong-buy” rating. The average price target for Coca-Cola stock is $70.91, which implies a potential upside of 33.2%.
Defensive names like Coca-Cola should come back into fashion at some point, so even though some short-term stock traders fear Coca-Cola’s prospects due to weight-loss drugs, it may be a good option to consider for the long term. Like the great Buffett would say: “be greedy when others are fearful”.
What do you think of Coca-Cola’s situation? Would you be willing to make a Buffett-style investment, against what most people may think?
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(Information in this post is for general informational purposes only. It cannot and should not be considered as suggestions or recommendations regarding investing or financial decisions.)
