 |
 |
 |
 |
 |
|
| Trader Wizard Perspective Daily global capital markets advice "Blog" posted before the NYSE morning bell and throughout the trading day. | ||
 | ||
| Who is Trader Wizard? | ||
 | ||
| Trader Wizard's Mission
My goal with this Ezine, other than enjoying the challenge of a weekly ‘buy or sell’ recommendation, is to continue the independent investor information, education and facilitation process started with Trader Wizard. | ||
| ||
| Articles by Trader Wizard | ||
 | ||
|
Week 45 In Review Gold Prices to Zoom Follow up on TASR TW’s Daily Show: Nov 19 Canadian Stocks Trader Monthly Are Regulators Also Players? Is SEC Watching GOOG? Letter to/from TW Networker John re KO | ||
| ||
| Attention all financial writers... | ||
 | ||
Independent Financial Writers Guildvisit Security Traders
| ||
 |
 |
 |
| |
| BUY or SELL Recommendation on Coca-Cola | |
 |
Coca-Cola (NYSE: KO) Nov 19 close: $39.73 RECOMMENDATION: ACCUMULATE Strategy: Write KO=MH January-05 Puts Strike@40.00 and Bid Price market close Nov 19 (NQ=MD Jan-05 close @ $1.30) OneChicago Single Stock Futures (KO1C): KO1C Z4 (Dec 04) $39.58 Among general reading, here is material I used to make this decision: EasyStock Interactive charts: Monthly, Weekly, Daily, Hourly, 30-Minute, the Reuters data at Yahoo Finance, and the Value Line report, dated Nov 5, 2004. |
| The case for accumulating (the stock): | |
 |
1. The stock is fairly priced today, but is well positioned for the next three years as the global economy recovers. My EPS, PE and Target Price estimates for KO are $2.00/21/$42 (2004+), $2.20/22/$48.40 (2005), $2.42/23/$55.65 (2006) and $2.66/24/$63.85 (2007). With my accumulation target of $38.70 on KO (which is the Jan-05 40p strike enhanced by premium income), my price targets are $48.40 (+25%) by year-end 2005; $55.65 (+44%) by year-end 2006; and $63.85 (+65%) by year-end 2007. These estimates are based on normal 10 percent earnings growth; however, I foresee KO will also grow via acquisitions, and with share buybacks, plus a growing dividend, would increase these projections somewhat. 2. Profitability is very high, with 33% operating margins, 23% net profit margins, Return on Equity over 30% and Return on Assets almost 20%. Therefore the stock deserves a relative PE ratio (Value Line's estimate) of 1.45 the average PE of the Dow 30. In spite of its reputation today in the media, Coca-Cola is a cash cow, with a steadily rising cash flow per share. Sure the company could use a brand makeover, but the brand is one of the top two or three in the world and once international profits generated from a lower U.S. Dollar really start to kick in, the media will change its tune. Investors have to overlook the stories and focus on the numbers. 3. The news reporting has been very questionable, e.g., “New management says turnaround will take two years!” Well, setting the bar low makes it an easier jump, and Buffett, the boss, gets to accumulate more stock at depressed prices. “Days of 20% growth are over!" Well, for a $100 billion market cap company, what’s wrong with 10 to 12? 4. The corporation is financially among the strongest in the Dow 30 and is rated A++ by Value Line. It’s Current Ratio (1.1), Quick Ratio i.e., acid test (0.7) Liquidity Ratio i.e., cash (0.44) is satisfactory and has improved for five straight years. The Debt Ratio at 48.5 is satisfactory and compares to IBM at 73.3 and BA at 84.7. Interest coverage is 31.9, is quite satisfactory. 5. Altman’s Z-score Ratio, which is another solvency test used by market pro’s, is at 6.25 versus 2.62 for IBM and 2.34 for HPQ (comfortably over the 1.80 test). Compare this to GE at 0.74 and BA at 1.65 and you begin to see which companies are going to suffer relatively more if, as and when interest rates increase. 6. In a rising interest-rate environment, which I expect now that the election is out of the way, the financially weakest companies will seek mergers or takeovers and the strongest in each industry, like Coca-Cola in the non-alcoholic beverage industry, will pick up bargains. KO has over $5 billion in cash to do it, too. 7. The stock has been hammered down. Almost all buying in the next two months will be at prices that are lower than almost every investor paid since 2Q96. Short-term technical indicators have now turned bullish, which will take the long-term (monthly data) indicators bullish as well in the next month or two, likely in 1Q05. Technically, KO is already in a long-term accumulation zone. Beta is just 0.34, so broad market weakness is unlikely to have a significant negative impact on the stock. |
| The case against accumulating (the stock): | |
 |
1. A sell-off in the Dow over the next couple weeks would likely focus on KO as a tax loss, serving to push KO even lower than my accumulation zone at ~$38.70. In addition, longer-term, there is great concern that non-brand names in major markets like Russia, Philippines, China, India may replace the KO brand in popularity. |
| Trader Wizard's expectation for this trade: | |
 |
|
| Trader Wizard "buy or sell" Ezine Archive: | |
 |
|
|
| |
