The King of Pop

By Jon Quast - August 10, 2012 | Tickers: KO, ABV, PEP | 0 Comments

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All investors (at least all the ones I know) want one thing out of the stock market: to make money.  I was going to say there were two things, the second of which being that investors don’t want to lose money, but then I thought it a little redundant (and then I wound up saying it anyway in this explanation of what I didn’t do).  I say investors, because there are people who come to the stock market with a Powerball mentality.  They are willing to dump money into losing stocks, waiting for the one in a million penny stock that hits the ball out of the park and into kingdom come.  Those people are not investors, they are gamblers.

Investing is approached very differently.  Investors  look at the numbers and making educated predictions for the future rather than just speculating.  To these investors, they get in because they have a good feeling on where a company is going with their business.  That being said, there are real investments that are more risky than others.  Risky investments are typically companies heading in the right direction, but without a proven track record.  Safer investments would be those who are profitable, have a competitive advantage, and a long track record of good business.

Many investors, therefore, enjoy investing in these safer companies.  They may try a risky stock once and in while, but they want some good companies to anchor down the portfolio through thick and through thin.  It is on that note I would like for you to consider the King of Pop.  No, I’m not talking about Michael Jackson.  I’m referring to the Coca-Cola Company (NYSE: KO).  These guys are the true king of pop.

Not Going Anywhere

Unless the CEO sells the secret recipe on Ebay and then pays all of his employees to play tiddlywinks until every last asset is used up: Coca-cola is not going anywhere ever.  It is here to stay, and we’ll talk about some tricks it has up its sleeve in a moment.  First thing in Coke’s favor is that its been around 120 years now.  The kinks were worked out of the business a long time ago.  Another positive for Coke is that they are truly a global company.  Scratch that: they are the model of a global company.  I’m somewhat of a world traveler, and every country I visit, I bring back home a glass bottle as a souvenir.  I’ve never had any problem finding a coke.

Ok Pepsi (NYSE: PEP) fans settle down.  Yes, Pepsi is a big global company too.  The point of this article is not to bash Pepsi, but to demonstrate why Coca-Cola is never going down.  Pepsi, as big as a competitor as they are, won’t topple the king completely.  I think that they both kind of need each other and will be eternally locked in this cola battle.

Not the Best Product

Truth be told, I don’t think that Coke is the king for having the best product in the world.  There are many smaller beverage companies that I think have better options and quality.  Take Jones Soda for example.  They have a fantastic selection of flavors and I have never had one that I didn’t love (for the record, I have never tried “Christmas Tree” nor “Mashed Potato and Gravy” flavors…)  But they won’t dethrone the king with just a great product.  In fact, Jones seems to be heading straight for bankruptcy in the near future.

In Brazil, Coca-Cola has tried for years to topple Companhia de Bebidas das Americas’ (NYSE: ABV) Guaraná Antarctica soda.  Coke has a new Guaraná product of their own called Kuat, but it would have to succeed where other attempts have failed to topple the Brazilian’s love for the Antarctica brand.  Having tasted both, I see why Brazilians aren’t giving it up.

They may not have the best product, but they have the most accessible and profitable one. 

A lesson from the Incas

Have you ever heard of Inca Kola?  It’s hard to find in the USA.  If you ever see it, do yourself a favor: don’t buy it.  Why?  Because it is so good you’ll lie awake at night craving it, wishing you could just have a little bit more, but you can’t because you’ll never find it at the store again.  No, but seriously this is a very good drink hailing from Peru.  Inca, ironically, means King in Quechua and Coca-Cola could not topple the king from his Peruvian throne.  No matter how hard Goliath tried, he couldn’t take down little David.

So Goliath bought David out.  It’s simple for Coke.  They tried to beat them and couldn’t.  Inca hit a financial crunch, and guess who saved the day: The King of Pop.  Here’s the lesson: if Coke isn’t number one, it has the money and is willing to use it to become number one.

But what if…

NYC is thinking of a ban on fizzy drinks.  So is Cambridge Massachusetts.  Let’s imagine the ridiculous scenario that the United Nations decides to outlaw all fizzy drinks effective immediately (and then miraculously figures out how to enforce something for the first time in the UN's existence).  Even so, Coke has the money to adjust and make its secret formula "non-fizzy."  They’ll do it.  Here’s why I can confidently make that claim.

This imaginary scenario wouldn’t be the first time Coke has had legal problems.  In 1916 the FDA took Coca-Cola to court over the healthiness of the product.  To make a long story short, Coke actually decided to lower the amount of caffeine in the soda.  They adapted to the new health environment.  They have done it before.  If something happens where people are turning away, either willingly or forcefully, from Coke products, you better believe that Coke will be waiting on the other side with an alternative product that the people want.

Be a Fool

If you are looking for a company to stand as an anchor to your portfolio, look no further.  The Coca-Cola Company can help you anchor that ol’ portfolio to the ground.  The business is still growing, so your shares should be appreciating at a modest rate.  And they have a nice dividend to offer you.  My advice: stay in the King’s court, and everything will be fine.

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