One of the things this bear market has done to me is to change my own perspective on stocks. I am less a momentum player and more a conservative stock picker. That of course could change if the market indeed makes a fundamental readjustment.
I am of course waiting for a signal from my own portfolio which would consist of one of my own stocks hitting an appreciation target and triggering a partial sale of shares. If that should happen, and if the market rally continues it is likely, then I shall be looking for a new holding to add to my small clutch of 5 stocks (I max out at 20 positions).
Two of my favorite blue-chip type stocks are Coca-Cola (NYSE:KO) and Colgate Palmolive (NYSE:CL). I do not currently own shares in either of these companies. Coca-Cola closed Wednesday (4/15/09) at $45.03, up $.82 or 1.85% on the day. Colgate-Palmolive closed at $58.03, up $.74 or 1.29% on the day.
I would like to try to as simply as possible look at the latest quarter, the longer-term results, valuation, and chart on each and see if we can come to some decision about which might be the better pick for my blog (and where I might choose to park some money should the opportunity arise and I receive the appropriate 'signal'!).
Regarding the latest quarter, Coca-Cola reported 4th quarter 2008 results on February 12, 2009. Adjusted earnings per share (removing one-time items) came in at $.64/share, an increase of 10%. (Un-adjusted they were $.43/share but were adjusted to a "non-cash imparment charge at Coca-Cola Enterprises") These results beat Wall Street estimates of $.61/share on revenue of $7.52 billion. However, the company missed the same revenue estimates as they came in at $7.13 billion in revenue for the quarter.
For me at least, this is a mixed bag of results.
What about Colgate? On January 29, 2009, Colgate reported 4th quarter 2008 results. Sales for the quarter increased 0.5% to $3.6 billion and unit volume increased 1%. Net income grew 7% in the quarter to $497 million or $.94/share, up from $414.9 million or $.77/share the prior year.
Excluding restructuring charges, which analysts generally exclude as well, they came in at $1.00/share, ahead of analysts' expectations of $.98/share. For the entire year 2008, the company, excluding the one-time restructuring charges, came in at $3.87, again beating expectations. The company indicated that it was "comfortable" with the analyst forecast of $4.23/share for the year, which would be 9% ahead of the 2008 results.
Insofar as the latest earnings are concerned, I am more impressed with the Colgate results. Chalk one up for CL!
What about longer-term?
Reviewing the Morningstar.com "5-Yr Restated" financials on Coca-Cola, we can see a nice increase in revenue from $21.7 billion reported in 2004 to $31.9 billion in 2008. This is about a 50% increase during that period.
Earnings have increased from $2.00 in 2004 to $2.57 in 2007 and dipped slightly to $2.49 in 2008. The company has increased dividends steadily from $1.00/share in 2004 to $1.52/share in 2008. During that same period, KO managed to reduce outstanding shares from 2.43 billion in 2004 to 2.34 billion in 2008.
The company has been generating oodles of free cash flow with $4.55 billion reported in 2006 increasing to $5.60 billion in 2008. Balance-sheet-wise, the company has $4.7 billion in cash, $7.5 billion in other current assets for a total of approximately $12.2 bilion. Compared to the $13.0 billion in current liabilities this results in a current ratio of just under 1.0. Long-term liabilities are not insignificant at $7.06 billion.
Looking at the "5-Yr Restated" financials on Colgate from Morningstar.com, we can also see the steady growth in revenue from $10.6 billion in 2004 to $15.3 billion in 2008. Earnings have increased without interrruption from $2.33/share in 2004 to $3.66/share in 2008. Dividends have also increased in an uninterrupted fashion from $.96/share in 2004 to $1.56/share in 2008. Outstanding shares have also been reduced from 570 million in 2004 to 535 million in 2008.
Free cash flow has been solidly positive with $1.35 billion in 2006 increasing to $1.56 billion in 2008. Checking the balance sheet, Colgate is reported to have $555 million in cash and $3.16 billion in other current assets. This total of approximately $3.7 billion, when compared to the $2.95 billion in current liabilities yields a current ratio of approximately 1.25. The company has an additional $5.1 billion in long-term liabilities according to Morningstar.
From my perspective, with the uninterrupted earnings growth and the stronger balance sheet, the edge once again goes to Colgate.
And what about valuation?
Looking at the Yahoo"Key Statistics" on KO, we see that the comapny has a trailing p/e of 18.11 with a forward p/e of 13.24 (fye 31-Dec-10). This results in a PEG of 1.74.
Again looking at the number on Yahoo for CL this time, we see that the trailing p/e is 15.86, with a forward p/e of 12.48 (fye 31-Dec-10). The PEG is reported at 1.24.
Again, valuation appears a bit better with Colgate, but in absolute P/E ratios as well as PEG estimates of valuation relative to growth in earnings.
What about the charts?
First the 'point & figure' chart on Coca-Cola from StockCharts.com. Here we see that the company which peaked at $63 in January, 2008, has been trading in a relatively tight range between $38 and $47 since October, 2008. Recently the stock broke through 'resistance' at around $45.03.
And the chart on Colgate? Actually, checking the 'point & figure' chart on CL from StockCharts.com, I would give a slight edge to Coke with the stock also peaking at $79 in September, 2008, only to dip to a low of $55 in October, 2008, and then trade since that time between $55 and $69 til the present time where it closed at $58.03. The stock, as noted, is trading slightly below its resistance line.
It really isn't fair to compare two different companies like Coca-Cola and Colgate. However, if one is to look at recent earnings, longer-term results, and briefly at valuation and a chart, I would be leaning towards Colgate Palmolive, which had a slightly better recent earnings announcement, a steadier history of earnings and revenue growth with a stronger balance sheet. Valuation-wise, Colgate is a bit 'cheaper' than Coke as well. Finally, while their charts are similar, the edge may be perhaps slightly to Coca-Cola's favor.
I am not currently an owner of either of these stocks. But if I had the opportunity, I would be selecting Colgate as my next 'conservative' growth stock! While Coke remains a perennial favorite of mine, and I believe is well-positioned for growth in the future, the numbers are driving my assessment. While many things 'go better with Coke', Colgate-Palmolive offers me the Total solution.