Coke's profit and shares up

Taking Stock

consensus on stock is 'buy'

January 04, 2004|By Andrew Leckey

I'm a retired investor who has owned shares of Coca-Cola Co. for several years. How has the company been doing and what are its prospects?

- R.S., via the Internet

Coca-Cola remains the big dog in a dog-eat-dog business.

To succeed, the world's largest beverage maker must relentlessly seek out new ways to gain a competitive edge.

It must do battle with rival PepsiCo Inc., which has been more successful in profitable noncarbonated beverages and offers a more diversified line that includes Frito-Lay and Quaker products.

Coca-Cola will start marketing its Dasani bottled mineral water in France in spring 2004, competing with established French brands, such as Danone's Evian. Meanwhile, it also entered into an agreement to market and distribute Evian in the United States.

It will become the sole supplier of fountain drinks to Subway Restaurants' 20,000 sites worldwide starting in 2005, ending Subway's longtime PepsiCo partnership.

A marketing push for Coca-Cola's diet brands begins in 2004, increasing the store displays dedicated to them. It's likely Diet Sprite will be reformulated and renamed Sprite Zero. Marketing muscle is also being put behind the launch of new juice-based Minute Maid beverages.

Shares of Coca-Cola (KO) were up 11 percent last year, after declines of 6 percent in 2002 and 22 percent in 2001. The company has low debt and a stronger cash flow than PepsiCo. Chief Executive Officer Douglas Daft and Chief Operating Officer Steve Heyer have boosted innovation and reduced operating expenses.

Earnings rose 12 percent in the most recent quarter, slightly less than analysts expected. Worldwide sales of cases of drinks rose 4 percent in the quarter, helped by the falling dollar.

The consensus on Coca-Cola stock from the analysts who track it is a "buy," according to the Boston-based First Call research firm. That consists of three "strong buys," eight "buys" and eight "holds."

The estimate of Coke's earnings increase for last year is 14 percent, which is in line with beverage industry projections. This year's anticipated 7 percent rise compares with a forecast of 10 percent for its peers. A five-year annualized increase of 10 percent is projected, vs. 11 percent forecast industrywide.

Coca-Cola recently paid a former employee $540,000 to settle a series of claims against it, including one that it skewed marketing data and misled Burger King in a promotion. In another matter, Coca-Cola issued new guidelines for school beverage deals in response to public concerns over increased obesity among children.

I have one fund in my Roth individual retirement account: Fidelity Puritan Fund. What do you think of it?

- T.S., via the Internet

Investors want steady gains with few surprises in their retirement accounts and this fund fills that bill. That's why it has $21 billion in assets.

Since the fund's inception in 1947, its conservative strategy for stocks and bonds has produced a lifetime return of 11.8 percent. It also has a low annual expense ratio of 0.66 percent.

Fidelity Puritan (FPURX) gained 18 percent over the past 12 months and had a three-year annualized return of 3.27 percent. Both results rank in the upper one-third of balanced stock-and-bond funds.

"If you're using a single-fund investment strategy, about the only thing this fund won't have is growth stocks," said Jack Bowers, editor of the Fidelity Monitor newsletter (www.fidelitymonitor.com) in Rocklin, Calif. "However, its dividend stocks and value stocks will hold up over time, which is a good thing."

The portfolio's bonds might not do as well the next couple of years because of pressures on long-term interest rates and the threat of rising inflation. Serious rate pressure has yet to occur. Bonds constitute less than one-third of the portfolio, and some of its high-yield bond holdings should help balance things out, Bowers said.

Fidelity Puritan holds few technology stocks, which decreases volatility but holds back returns when growth areas are booming.

Stephen Peterson, who manages the fund's equity portfolio, has also turned in a strong performance at Fidelity Equity-Income Fund. Bond manager Kevin Grant has produced solid results at Fidelity Investment Grade Bond Fund.

One-third of the stock portfolio is in financial services, with industrial materials and energy its other significant concentrations. The top portfolio holdings recently were Fannie Mae, ExxonMobil, Citigroup, Freddie Mac, American International Group, Bank of America and U.S. Treasury bonds.

This "no-load" (no sales charge) fund requires a $2,500 minimum initial investment.

Andrew Leckey is a syndicated columnist. Address inquiries care of yourmoneytribune.com

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