I really like Coca Cola and it appears I am not the only one. Analysts appear to like the company also. A stalwart of the U.S. stockmarket, it has healthy profits in our global uncertainty and not a bad dividend either. It would make a good long term investment and also its consistency will make a good candidate for a short term income play.
You Have to Like KO's Profits
On a very bright note, it was good to see Coca Cola post higher-than-expected quarterly profit. Even though Europe declined (as with most industries and companies), emerging markets grew enough to offset any loss to the company. A quick summary brought these results:
- Second-quarter sales rose 4%
- North America up 1%
- Eurasia and Africa up 12%
- Pacific up 8%
- Latin America 3%.
One the pessimistic side, sales fell 4% in Europe with the poor economy and unseasonably cold weather it has been experiencing. Bernstein Research analyst Ali Dibadj said that the loss in Europe was more than expected with China and Mexico also softening. But because of the global sales, overall expectations were met and surpassed. Coke - through all this macroeconomic weakness - continues to inch its way up on low volatility.
Analysts Really Like Coca Cola
Did you know that Coca-Cola Co is the 9th broker pick, on average, out of the 30 stocks making up the Dow Jones Industrial Average, according to ETF Channel? Coca-Cola Co is also a top tier analyst pick among the broader S&P 500 index components. A popular analyst pick could mean that many sharp minds individually came to the same bullish conclusion. And therefore the stock should do well, but it could also mean that if the company stumbles, that would come as a negative surprise.
The Option Play
Presently trading at 77.03, I can see a bullish step formation as it continues to climb and it looks like it is entering the step building phase after climbing. This is usually a consolidation period. If it follows the same pattern it could pull back as far as the 75 level before moving up. For this reason, I am going to suggest longer time decay protection on a Bull Call Spread - playing into the trend.
- Buy a November 2012 call with a strike of '77.50' (priced at $2.05)
- Sell a November 2012 call with a strike of '80.00' (priced at $1.03)
- Net Debit to Start: $1.02
- Maximum Profit: $1.48
- Maximum Risk: net debit
- Maximum Length of trade: 5 months
Reasoning Behind the Trade
- Trading with the long term trend.
- Profits have consistently been good as emerging markets have continued to lift the stock.