This Would Make Me Sell My Coke Stock

Warren Buffett has said on multiple occasions that he will never sell a share of Coca-Cola . Buffett's holding company, Berkshire Hathaway, owns 400 million shares of the soft-drink company, its second-largest public equity holding. If Buffett says he'll never sell his stock, retail investors might wonder whether they should hold on to their shares as well. While long-term owners will likely reap adequate returns in the future, one potential development could give investors reason to abandon Coca-Cola stock. Investors need to keep an especially close eye on how Coca-Cola sales are faring internationally.

Key to success Before looking more closely at what could derail Coca-Cola's stock price, let's look at what the company needs to do to succeed. Coca-Cola's keys to success in the 21stcentury are the same as in the 20thcentury: growth in worldwide per-capita consumption of its beverages.

The company's 2010 per capita consumption report highlighted the importance of this measure:

Buffett bought his first 14 million shares of Coca-Cola in 1988. Back then, worldwide per-capita consumption was about one-seventh of that in the United States. Since then, worldwide per-capita consumption has grown to about one-fourth that of the United States.

The growth has been driven by countries such as Mexico, Chile, and Panama, which have seen population increases and improvement in economic conditions over the last two decades.

However, the path to growth is less clear as Coca-Cola heads deeper into the 21stcentury. Many countries are increasingly shunning soft drinks because of their harmful health effects and due to the growing number of alternatives. Comparisons are starting to be made between the backlash against soft drinks and that against cigarettes -- a terrifying comparison for Coca-Cola investors.

For example, Mexico -- Coca-Cola's top market on a per-capita basis with 675 8-ounce servings consumed in a year in 2010-- recently passed a tax on sugary beverages that TheWall Street Journal reportedis significant impacting soft-drink consumption in the country.

Consumers in the United States and other developed nations are beginning to reject soft drinks as well, through social trends if not legislatively. Per-capita consumption of Coca-Cola's beverages declined in the United States from 2002 to 2012 by nearly 6%. A continuation of this trend would have far-reaching impacts on the soda maker's bottom line.

A 21stcentury strategy Clearly, the Coca-Cola of today is not the Coca-Cola of the 1980s. Yet it still has a lot of promise. Soft-drink consumption continues to grow in emerging markets; Brazil, China, India, and Latin America represent promising growth opportunities as these countries' populations increase and their middle class expands.

Moreover, Coca-Cola is focused on increasing per-capita consumption of all itsbeverages, not just carbonated soft drinks. Recent investments in Monster Beverage and Keurig Green Mountain underscore the company's commitment to diversifying its product mix. In addition to entering the coffee market and expanding its presence in the energy drink category, Coca-Cola is also dabbling in milk. Company executives have talked up their plans for Fairlife, a "premium" milk brand that will hit stores later this month. These moves at diversification could help stem the beverage retailer's declines in developed markets.

The 1 thing that would make me sell Coca-Cola stock Even as Coca-Cola diversifies its beverage portfolio, the company is still largely dependent on soft-drink sales. Three-quarters of Coca-Cola's global beverage volume consists of carbonated soft drinks, according to The Wall Street Journal. . Strong headwinds will persist in developed markets even as Coca-Cola reshapes its portfolio to match healthier lifestyles, but emerging-market growth should remain robust. If growth tapers off in India, China, and Latin America, then Coca-Cola could be in big trouble. A soft-drink company that can't sell soft drinks is not a good investment; that's when it's time to sell.

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Ted Cooper owns shares of Coca-Cola. The Motley Fool recommends Berkshire Hathaway, Coca-Cola, Keurig Green Mountain, and Monster Beverage. The Motley Fool owns shares of Berkshire Hathaway and Monster Beverage and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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