Two Reasons Why Coke Is It: China And Russia

Coca-Cola is one of the biggest sponsors of the 1994 Olympics, but it hasn't won gold medals on Wall Street for a while. Its stock has languished between 40 and 45 for two years and is currently at 42. But some money pros are now thirsty for Coke, the world's largest soft-drink maker. "Coke is the thing--the stock to buy in this defensive market and definitely a vehicle for investors to go global," argues investment adviser Steve Leeb.

With international operations producing nearly 70% of sales and 80% of earnings, the stock is a compelling play in overseas markets, says Leeb, editor of Personal Finance and The Big Picture newsletters. He predicts Coke's profits, 29% of which come from Pacific countries and Canada and 28% from the European Union, will grow robustly over the next few years.

China and Russia are markets that Coca-Cola could build up in a big way, says Leeb, adding: "I know of very few companies that can develop a foreign market as efficiently and profitably as Coke." He sees it swallowing a big gulp of China and Russia, as it has done in Japan and Europe.

In 1993, Coca-Cola sold 100 million cases in China, where it is building 10 factories--on top of the 13 it has in operation. Coke's Chinese operations are already profitable, and the new facilities could mean 25% annual growth, Leeb says.

GLUG, GLUG. "No longer can the Street afford to ignore Coca-Cola," says Leeb. He sees the stock rising to 65 in two years. "Five years from now, it will be a $100 stock."

Several observers agree that Coca-Cola, which also makes Tab, Sprite, Minute Maid, and Hi-C, faces rosy prospects. Analyst George Thompson of Prudential Securities notes that Coca-Cola CFO Jack Stahl "reinforced our conviction that Coca-Cola's near-term fundamentals are becoming more positive and that the long-term case for the stock is the best we've encountered in 20 years."

A laggard in 1993--despite strong growth in earnings per share--Coca-Cola is selling at the low end of its historic price-earnings range of 32 to 25, notes June Page of Bear Stearns. Its current p-e is 25. Based on Page's 1994 earnings estimate of $2 a share (vs. last year's $1.68), she sees the stock trading at 55 this year. Coca-Cola, with "a truly global brand franchise," says Page, "is our top stock pick for 1994."