Technical Opinion

Coca Cola Co (NYSE:KO) appears to be a stable company with modest but solid growth potential for the foreseeable future. The Coca Cola stock  seems to be moving with small momentum at this time and according to the charts as well as analysts price targets, the stock is expected to make some fresh highs within the low $40s to high $50s price range. The stock has a low Beta, of 0.47 which means that it will not rally as much as the indices could rally, so it is not a really good follower of the major stock indices. On the bright side, the stock has been recently rated as a buy by analysts, and the technical strength does confirm this expected upside.

 

The entire beverages industry in the US seems to be on good footing, and this is an industry which manages to remain relatively stable even during recession times, unlike industries that are immediately affected by reduced consumer spending. One risk however to all food and beverage producers is that of commodity prices, when commodities start to rise again all these stocks will come under some slowly developing long term pressure, but not necessarily a decline. The Coca Cola stock is one of those stocks that is unlikely to rally in an impressive way, but even more unlikely to drop in proportion to other stocks as indices go lower.

 

The above chart indicates some of the technical situation which Coca Cola stock is in at the moment. The ADX index indicates a slowly rising stock which is gathering momentum.

The above chart indicates some of the technical situation which Coca Cola stock is in at the moment. The ADX index indicates a slowly rising stock which is gathering momentum.

Fundamental Opinion

For investors wishing to look at Coca Cola from a long term perspective the stock seems to have a rather low fundamental value, within the range $40 – $45. What this really means is that if the stock rises too much above $45 in the next two years, all the price movement above that level will be considered unstable. When stock price rises above fundamental value it means nothing to investors, as long as things in the stock market are okay. The risk comes in when the stock market takes a sudden dive and finds these stocks trading too much above their fundamental value, that is when Coca Cola stock will drop back to, or below its fundamental $40-$45 price range.

 

Investors do not need to bother with Price / Earnings ratios and the like, as these can be highly misleading. The stock can rally well above $45 in the next two years, but from an investor’s point of view there will be downside risk should the markets correct lower for any reason, which may have nothing to do with Coca Cola specifically or the beverages market. As of today however, the Coca Cola stock seems to be strong and capable of pulling out of declines, so every drop below the $40 – $45 price range is a buying opportunity and this will likely remain so for many months to come. All in all Coca Cola remains a good choice for risk averse investors planning dividend based and long term investment strategies, it is one of those stocks that is good for diversification purposes, not quick big profits.

 

On the long term, Coca Cola is one of those stocks that provide asymmetric risk – reward ratio, that is more reward than risk. This stock always rises back up to reasonably expected fundamental levels, no matter how low it can go in the short term, and it is least affected by stock market direction because of its low Beta correlation factor.  Analysts are more optimistic at this time, more optimistic than the $40-$45 fundamental range, as they believe that the stock will reach higher levels, possibly above $50 at some point. This is normal, as a stock may well exceed its fundamental valuation, but the more it rises the less stable it becomes for long term investors seeking to enter near or below fundamental levels.

 

This stock is also suitable for short term investors seeking to avoid erratic stock market movement in periods where markets trade in tight, confusing ranges. Coca Cola is one of those stocks that may reach their near term upside targets in a solid trend, even though the major stock indices may keep trading in confusing, range-bound patterns. This is an investment technique which combines both trading and investment criteria as all investors pay attention to volatility and cyclical patterns.

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