Thirsty for a Good Investment? Coca-Cola May Be It

NEW YORK--In an environment where scary economic headlines seem to emerge every day, one money manager says there is one sure bet out of blue-chip stocks: Coca-Cola (KO).

Steve Rogers, who manages $350 million in assets at the California Investment Trust, said the 122-year-old beverage giant is well positioned to withstand a recession. He said Coca-Cola, which is the world’s number one soft-drink company, can thrive during weak-dollar conditions, escape inflation pressure and rely on an increasingly varied product selection.

“I’m in love with it," said Rogers. "It’s obviously one of the strongest brands in the world. I think you are buying that brand at a very inexpensive multiple."

Coca-Cola has held up better than the broader market, as the stock has fallen about 4% year-to-date, compared with the S&P 500, which has lost around 12% of its value this year. Also, Rogers said he’s impressed with the company’s earnings growth, solid cash flow and relatively low debt.

Last month Coca-Cola reported sales of $1.36 billion and adjusted-earnings of 58 cents per share for the fourth quarter of 2007, an increase of 12% from a year ago. That performance beat Wall Street’s expectations.

He credited a solid management team for those numbers. “These guys are methodical, they are consistent and they are reliable,” said Rogers.

Despite worries on Wall Street about a dollar that is in free-fall mode (it recently hit a 12-year low against the Yen), Rogers said he isn’t worried about Coca-Cola because it does business in 200 nations. According to The Wall Street Journal, 80% of Coca-Cola’s global profit originates from outside North America.

“It’s a great dollar hedge because they have good international earnings and good international growth,” said Rogers.

In the most recent reporting period the company’s foreign sales helped outweigh some weakness domestically. The weaker dollar makes products like soda cheaper for people in euro-zone nations such France and Germany.

Coca-Cola could also be in a good situation to withstand rising inflation, Rogers said.

“Let’s face it, their primary component is water, which falls out of the sky," Rogers said. "Coke is going to benefit because there isn’t any inflation in water."

One major concern with soda companies is there isn’t much room to grow in an increasingly crowded market with new products like energy drinks and coffee-related beverages. Even Coca-Cola has suffered from a 3% decline in year-to-year carbonated beverage sales, Rogers said.

The company responded to criticism that its business is too reliant on soda by making its largest ever acquisition ever: In 2007 it paid $4.1 billion for Glaceau, the maker of the popular VitaminWater. Coca-Cola also said last month it has big plans for its newest brand to expand overseas. The company followed that move by purchasing a 40% stake in organic tea maker Honest Tea for $43 million in February.

“Coke is uniquely positioned because they are going to be on every grocery shelve,” said Rogers.