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Monday, March 14, 2011

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Coca-Cola (KO, news) is gaining attention as an undervalued blue chip that's ideally positioned to help many investors get where they want to go as the bull market enters its third year.


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As with other mega-cap stocks, Coca-Cola shares are cheaper than their average price over the last decade -- investors are paying 13 times per-share earnings over the past 12 months, a discount from Coca-Cola's 10-year average P/E ratio of 25.
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Invest in Coca-Cola or PepsiCo?

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Dividends are a big reason Warren Buffett is so bullish on Coca-Cola. His investment vehicle, Berkshire Hathaway (BRK.B, news), is Coca-Cola's largest shareholder, with 8.6% of the company's stock. Berkshire last purchased Coca-Cola shares in 1995.



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Investors sat up and took notice this year when Buffett, in his much-anticipated annual letter to Berkshire shareholders, said he expects Coca-Cola dividends to double within a decade. If Buffett's right, the Atlanta company's dividend yield could jump to above 5.5% in 10 years, from 2.8% today.





Coca-Cola chief on growth plans



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"By the end of that period, I wouldn't be surprised to see our share of Coke's annual earnings exceed 100% of what we paid for the investment," Buffett wrote in the Feb. 26 letter. "Time is the friend of the wonderful business."



Coca-Cola appears on a daily ranking created using StockScouter, an MSN Money tool that identifies stocks with strong growth prospects in the near term. All stocks with Scouter ratings of 8, 9 or 10 are considered for the list, which is then shortened to exclude stocks with a trading volume below 50,000 shares a day. The remaining stocks are ranked on the basis of market capitalization, sector membership and whether they are growth or value stocks.
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With operations in more than 200 countries, Coca-Cola is the world's biggest soft-drink company. It owns four of the top five soft-drink brands (Coca-Cola, Diet Coke, Fanta, and Sprite). Other brands include Minute Maid juices, Dasani water and Honest Tea.


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Global sales rose in the fourth quarter despite a soft economy, the company said, with emerging markets like Brazil and India providing the fastest growth. It's also making a big push into Africa, where Coke is the dominant brand and a middle class is just emerging.



Coca-Cola also took market share from rival PepsiCo (PEP, news) in North America in the fourth quarter. Wall Street has been more bullish on Coca-Cola than on Pepsi in recent quarters because of Coca-Cola's strong global brands and its absence of snack foods, which tend to have lower profit margins and are more susceptible to rising commodity prices.







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Of 15 analysts covering the company, 11 rate Coca-Cola a "strong buy," three rate it a "moderate buy" and one has a "hold" rating.



The stock has a StockScouter rating of 9, meaning it is expected to significantly outperform the market over the next six months with very low risk by MSN.com/money

top 10


Company Sector Friday's close Forward P/E Scouter score

Chesapeake Energy (CHK, news) Oil and natural gas $32.81 10.9 10

Gap (GAP, news) Apparel $21.97 10.4 10

Coca-Cola (KO, news) Soft drinks $64.81 15.1 9

Exxon Mobil (XOM, news) Oil and natural gas $82.12 10.1 9

América Móvil (AMX, news) Telecommunications $55.10 13.1 9

Yamana Gold (AUY, news) Gold mining $12.73 12.3 9

ConocoPhillips (COP, news) Oil and natural gas $76.30 9.7 9

Chevron (CVX, news) Oil and natural gas $99.93 8.5 9

Lowe's (LOW, news) Home improvement $26.94 13.6 9

Macy's (M, news)









 


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