Analysts from Goldman Sachs recently issued a strategy note discussing how different types of stocks can be expected to outperform at different points in the business cycle. According to their note, Coca-Cola (NYSE: KO) may best fit the criteria for our current position in the cycle:
Coca-Cola (KO) fits many of the strategy criteria we seek in an investment at this point in the economic cycle. We recommend an overweight position in the Consumer Staples sector. Within the sector, Coke ranks highly from a revenue growth and ROE perspective and is a constituent in both of our thematic baskets discussed above.
In addition, Coke shares are also a constituent in our sector-neutral high Sharpe Ratio basket that consists of the 50 stocks with the highest prospective risk-adjusted returns. The basket has returned 6.5% YTD. Coke generates 55% of its revenue outside the US and 75% of profits. It was almost a constituent in our BRICs basket but a few Consumer Staples firms have slightly higher BRICs sales exposure.
Our Goldman Sachs Beverage analyst Judy Hong rates the stock a Buy and has a $76 target price reflecting a potential return of 17% from the current share price of $65. KO is flat in 2011. KO trades at 16.8x and 15.0xour forward EPS estimates of $3.87 for 2011 and $4.32 for 2012, respectively.
However, growth managers are nearly 100 bp underweight Coke shares.The typical large-cap growth mutual fund has a 0.6% position in KO compared with the stock’s 1.5% weighting in the Russell 1000 Growth Index.
Covestor models that hold KO as of 6/28 include:
- Buffettian Value by Zanshin Capital
- Large Cap by Gator Capital
Sources:
“Goldman Sachs: This Is The Best Stock For This Point In The Cycle” Cullen Roche, Business Insider. 6/27. https://www.businessinsider.com/goldman-sachs-bullish-on-coca-cola-2011-6
