Why Coca-Cola (NYSE:KO) Stock Deserves Its “Strong Buy” Rating

After a difficult 2022, it is natural that investors are looking forward to good news this year. Unfortunately, investors still face various challenges down the line, which makes Wall Street’s “Strong Buy” choose Coca-Cola (NYSE: KO) a great place to park your money. With a balance of passive income and capital gains potential, the soft drink giant is ready to handle just about anything. Therefore, I’m bullish on knockout stocks.

Following last year’s hemorrhage of red ink, the benchmark S&P 500 (SPX) is off to a relatively promising start. With a gain of nearly 4.7% since the start of the year, the circumstances seem ready for a positive turnaround. However, it is also important to consider the bigger picture. With excess liquidity still embedded in the monetary system and consumer sentiment still at rock bottom, investors need to be cautious.

Against these and other headwinds, the KO stock offers an encouraging profile. As TipRanks reporter Sirisha Bhogaraju said, Coca-Cola released strong results for its third-quarter earnings report, confirming its recession-proof thesis. Not only did the soft drink mainstay increase its revenue by 10% to $11.1 billion, but it also raised its full-year outlook. Keep in mind that management did so despite “significant currency headwinds and higher costs.”

Also, Bhogaraju noted that KO stocks represent one of the kings of dividends. The company has increased its dividends for 60 consecutive years. At the time of writing, KO’s dividend yield stands at 2.9%, above the average Consumer Staples sector yield of 1.9%. If unusual circumstances arise, investors will be happy to own Coca-Cola stock. Generally speaking, dividend stocks tend to be more stable.

Supporting the bullish narrative, the KO stock has a Smart Score rating of 9 out of 10. This indicates strong potential for the stock to outperform the broader market from here.

KO Stock boasts a cynically seductive narrative

Looking ahead, an attractive attribute associated with knockout actions centers around cynicism. Specifically, if the broader economic circumstances erode, Coca-Cola could benefit. First, the commodities themselves provide an addictive aura. Second, they can steal market share from other suppliers of caffeinated beverages.

Basically, the vice plays out in the realm of consumption (i.e. fast food, soft drinks) and attracts attention during tough economic cycles. Inasmuch as ABC News report from his archives showed that pizzerias thrived during the Great Recession. It was not an unusual development if you understand basic psychology. Through Harvard Healthmany people face difficult circumstances while eating comfort foods.

The same can be said of Coca-Cola and its delicious soft drinks. With a combination of sugar, sweeteners, caffeine and carbonation, they are hard to swallow. During tough economic cycles, soft drinks provide a much-needed pick-me-up.

And that last point segues into another positive catalyst for KO stocks – the ability of the underlying company to steal market share from other caffeinated beverage providers. Specifically, Starbucks (NASDAQ: SBUX) may be threatened. With inflation still high by historical standards and companies cutting good jobs by the thousands, consumers can’t waste money. Because grocery stores carry Coca-Cola products, the soft drink maker is winning the cost comparison battle.

Coca-Cola’s strategic shift pays off

Despite Coca-Cola’s dominance, the rise of millennials and their penchant for healthier drinking habits has put the knockout stock in a tough spot. Unlike previous generations, millennials haven’t seen the fascination with sugary drinks — at least not on a large scale. To address this dilemma, Coca-Cola made a strategic shift in 2018, renaming its Diet Coke line with taller, slimmer packaging.

By logical deduction, the pivot seems to have succeeded. Certainly, the disruption of the COVID-19 crisis is confusing the issue. However, in 2019, the company recorded revenue of $37.27 billion, up 8.65% from the previous year. Of course, Coca-Cola dropped in 2020 due to the pandemic. However, in 2021, it recorded sales of $38.66 million, and over the past 12 months the company is looking at a performance of $42.34 billion.

Notably, a single Hold rating prevents the KO action from reaching a strong buy unanimous consensus. Frankly, analysts have every right to be bullish on the underlying business. In addition to revenue growth, the company enjoys excellent profit margins. For example, its net margin stands at 23.44%, higher than more than 94% of its peers.

What is the price target for KO stocks?

As far as Wall Street is concerned, the KO stock has a consensus strong buy rating based on four buy ratings, one hold rating and zero sell ratings. The average KO stock price target is $66.40, implying an upside potential of 9.8%.

Why Coca-Cola (NYSE:KO) Stock Deserves Its "Strong Buy" Rating

The takeaway: KO Stock is ready for a storm

Basically, the knockout stock can accommodate whatever the economy throws at it. Should a bull market materialize, Coca-Cola’s strategic pivot to millennials should pay dividends (both metaphorical and literal). However, if a downturn does occur, Coca-Cola’s cynically appealing products should keep the lights on.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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