Coca-Cola is facing many uncertainties

Taking Stock

Your Money

May 23, 2004|By ANDREW LECKEY

I OWN shares of Coca-Cola Co. What's the company's outlook now that it has a new chief executive?

- C.V., via the Internet

The first-ever outside search by the world's largest beverage maker resulted in the naming of retired Coca-Cola executive E. Neville Isdell as chairman and chief executive, replacing Douglas Daft.

Isdell, who turns 61 in June and is a 35-year veteran of the company, brings stability to the position. He previously led the company into new global markets and ran the second-largest Coca-Cola bottling company.

He must immediately fill the firm's depleted management ranks and also faces the likelihood of others departing.

Another challenge is that the company faces a Justice Department and Securities and Exchange Commission investigation into allegations that it inflated its financial results by shipping too much concentrate to Japan and other markets.

The European Commission also has an informal probe into potentially anti-competitive practices.

Unlike PepsiCo and its broad array of products that include Frito- Lay snacks and Quaker oatmeal products, Coca-Cola depends primarily on beverages. With public concern over child obesity on the rise, the company is also facing pressure from educator and parent groups to curtail availability of its products in vending machines at schools.

Shares of Coca-Cola (KO) are up 1 percent this year, after last year's 18 percent gain. The company saw profits increase 35 percent and revenues rise 13 percent in its most recent quarter.

Strongest growth has been in Europe, China and Argentina.

The firm will launch its new lower-carb drink C2 first in Japan and then in the United States this summer. That drink has half the sugars, carbohydrates and calories of regular cola. Rival PepsiCo is rolling out a similar drink, Pepsi Edge, this summer.

Because of the uncertainties, the consensus rating of Coca- Cola stock from the Wall Street analysts who cover it is midway between a "buy" and "hold," according to the First Call research firm in Boston. That consists of 11 buys and nine holds.

Coca-Cola's earnings are expected to rise 9 percent this year vs. an 11 percent gain for the soft drink industry. Next year's projected 11 percent increase and the estimated five-year annualized gain are in line with its peers.

At Coca-Cola's recent annual meeting, a shareholder attempt failed to block the re-election of billionaire investor Warren Buffett to the company's board.

Critics had noted that Buffett's companies have done business with Coke.

He directly and indirectly holds $10 billion in Coca-Cola stock.

I'm thinking of investing in Matrix Advisors Value Fund. I understand it's an aggressive fund, but I have a high risk tolerance. What is your opinion of this fund?

- E.S., Debary, Fla.

It has a strong track record, thanks to a disciplined portfolio manager who keeps its head above water even during major stock market downturns.

The $301 million Matrix Advisors Value Fund (MAVFX) is up 26 percent over the past 12 months to rank in the top 5 percent of all large value and growth funds. Its three-year annualized return of 6 percent puts it in the top 1 percent of its peers.

David Katz, manager of the fund since its inception in 1996, is heavily invested in the fund himself. His portfolio is highly concentrated, currently with 42 stock names, and its annual expense ratio is a low 0.99 percent.

He seeks stock selling at a discount to its intrinsic value of one-third or more, though he's also willing to invest in some of the more expensive sectors at various times.

"This fund could be a core holding for your portfolio if you want to maintain a long-term focus," said Gareth Lyons, analyst with Morningstar Inc. in Chi cago.

"The tech stocks he's investing in will undoubtedly see some bumps, but he balances those with health care and financial- services stocks that tend to behave better in choppier markets," Lyons said.

One potential drawback is that Matrix had been slated to be incorporated into Strong Financial.

Strong founder and former chief executive Richard S. Strong agreed last week to pay a $60 million fine to settle allegations that he engaged in improper trading. The company will pay $115 million in related penalties.

The Matrix board decided to suspend its vote on joining Strong until the scandal shakes out further.

Financial services and health care each represent about one-fourth of the fund's assets. Other significant groups are consumer services and industrial materials. Its largest stock holdings recently were Novellus Systems, Morgan Stanley, Symbol Technologies, MedImmune, General Electric, Baxter International, Nokia, American International Group, Wyeth and Gap.

This "no-load" (no sales charge) fund requires a $1,000 minimum initial investment.

I'm interested in trying online banking and online bill payment for convenience. How do I go about choosing which one to use?

- K.L., via the Internet

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