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Midas Mulligan » Comments » COST
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Five Great Companies to Buy at a Drop [View article]
The points you make regarding cost-input inflation and the ability to take pricing can be applied to the entire universe of consumer products and packaged food/beverage companies. Recent earnings reports from WWY, PEP, KFT, CL and others appear to demonstrate that the consumer companies are navigating cost-input inflation waters effectively, and are taking sufficient pricing to remain quite profitable.
As for multiple contraction, Coca-Cola, for example -- if the stock traded down 15% from the current quotation -- would be trading at a multiple of slightly over 12x FY09 consensus. Twelve times forward earnings would be less a "gift" and more of a "miracle" for it to collapse to a multiple not seen since the Second World War. "Black Swan" event indeed.
A broad market decline could see these companies visit valuation lows not seen in generations, but if it ever were to occur, investors should not expect them to remain there long -- and as such, be nimble ( with liquidity at the ready ) on any such "catastrophic" decline.