1 Stock Making Money the Right Way
Jan 23rd 2012 11:15AM
Updated Jan 24th 2012 9:38AM
Consumers are becoming more and more socially conscious, and want the goods and services they use to measure up. In truth, it doesn't take much. A simple action that costs a company very little or nothing at all can make a real difference in the mind of the consumer.
Often, the added expenses a company incurs from paying workers a little more, monitoring resource sourcing, or going the extra ethical mile are small downsides when compared to the huge potential upside. And where there's company upside, there's investor upside.
Coca-Cola (NYS: KO) is one such company. Let's dive deep into the fizzy workings of the beverage giant, evaluate its socially conscious policies and practices, and take a hard look at the numbers. We'll evaluate how it's performing as a business, as an investment, and as a socially conscious enterprise.
Saving the polar bears and more
Coca-Cola probably isn't the first company that comes to mind when you think socially responsible enterprise. Whole Foods (NAS: WFM) ? Sure. Just imagine the endless bulk foods sections, the bewildering array of recycling options that face you down at the exit, and the rows upon rows of vitamins, natural health supplements, and herbal remedies. See? Easy.
But Coca-Cola will surprise you. On the company's website, there's a dedicated sustainability section that goes beyond mere modern marketing and proper public relations. It's expansive, for starters, and goes into great detail about exactly what sort of socially responsible initiatives the company is undertaking. For instance:
- Water stewardship: To "safely return to nature and communities an amount of water equivalent to what we use in our beverages and their production."
- Energy efficiency and climate protection: To "be the beverage industry leader" in said endeavors, specifically in reducing carbon emissions at its plants; moving toward sustainable, eco-friendly methods of beverage refrigeration; and using the best possible mix of energy sources in transportation of its beverages.
- Sustainable packaging: Aspiring to make "our packaging a valuable resource for future use."
- Healthy communities: Fostering "sustainable communities through economic development, philanthropy, and the creation of economic and social activities."
To top things off, a "performance highlights section" establishes metrics, sets specific goals, and tracks progress on all of the initiatives listed above.
Coca-Cola is also making a well-publicized effort to protect the polar bear and its habitat, an outgrowth of its polar-bear-focused ad campaigns. Good for PR? Yes. Good for the polar bear? Also yes. Both can profit here. Speaking of which, let's take a look at the numbers and see how Coca-Cola's business and stock are performing.
Coke's financials are the real thing
While it makes other beverages, Coca-Cola is best known for its signature brown fizzy sugar water. It's been making it the exact same way for 125 years, and the world apparently can't get enough of it. Whatever market the company expands into, people drink the stuff down. By the numbers:
- Quarterly revenue grew a staggering 45% year over year.
- Quarterly earnings grew a very healthy 8.1% year over year.
- The balance sheet holds $16.5 billion in cash and $29.19 billion in long-term debt. That's more debt than we'd like to see, but money is cheap right now, and Coca-Cola is a cash-generating machine, so the company should be able to keep up with debt payments quite easily.
Gross margin, a measure of brand strength and pricing power, is a rule-making 60.69% over the trailing 12 months. Longtime rival PepsiCo (NYS: PEP) comes in at significantly lower 53.2% TTM for this metric. Even though Pepsi's revenue is greater than Coke's, $64.5 billion TTM versus $46 billion, Coke keeps more of each dollar they bring in.
Since 1886, still making money and a difference
Shares of Coca-Cola are going for about $68, only $3 off its 52-week high, with a very reasonable P/E of 12.5. Why so reasonable? For all its growth, the company doesn't have the cachet right now of, say, Starbucks (NAS: SBUX) , another socially responsible favorite that's been covered in this column. At the moment, the hip, Seattle-based coffee purveyor is trading with a significantly higher P/E of 29. Both companies are growing like mad, so why not go with the one that's on sale? Coke even pays a dividend of 2.8%.
Coca-Cola makes a product we humans apparently can't live without, and it's a company that's trying to do the right thing. Are any companies perfect in this regard? No, but, to paraphrase Voltaire, it's important to never let the quest for the perfect drive out the good.
Two more companies making money responsibly
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At the time this article was published Fool contributor John Grgurich quotes Voltaire whenever he gets the chance, though his German Shepherd prefers Nietzsche. Neither owns shares of any of the companies mentioned in this column. The Motley Fool owns shares of PepsiCo, Starbucks, Coca-Cola, and Whole Foods Market. Motley Fool newsletter services have recommended buying shares of PepsiCo, Whole Foods Market, Starbucks, and Coca-Cola. Motley Fool newsletter services have also recommended creating a diagonal call position in PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a positively scintillating disclosure policy.
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