Is Coke the best consumer stock for emerging market investors?

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Legendary investor Warren Buffett has reduced his Berkshire Hathaway ( BRK.A , quote ) holdings in many consumer stocks, but not in Coke. ( KO , quote ).

Buffett is big on emerging market growth - as demonstrated by his buying the Santa Fe Burlington Northern Railroad, which transports coal to West Coast ports for shipment to emerging market countries, and his recent visit to India. But he has lightened up on consumer stocks such as Kraft Foods ( KFT , quote ).

This was because Buffett feels that consumers will turn to generic brand names rather than those like Oreo, which is a Kraft product. But Buffett has maintained his substantial, long term position in Coca-Cola, for good reason. With a profit margin of 18.49% and dividend yield of 2.60%, Coke has been very rewarding in its total return for investors.

Much of this emanates from emerging market consumers . At present, Coca-Cola products are bought and sold in every country in the world, except for two: North Korea and Cuba. After an absence of sixty years, Coke just began operations in Myanmar (formerly Burma) again.

As the emerging market consumer class is expected to reach $30 trillion in spending by 2025, according to a recent report by global consulting firm McKinsey & Co., Coke is well-positioned to profit from that expanding affluence. Even during the Great Recession, the middle class in emerging market nations continued to grow. By 2025 consumer spending from it will be about the current total for the world.

While there are certainly competitors to Coke, none have come close to toppling the king of consumer beverages. Warren Buffett exclaimed, "If you gave me $100 billion and said, 'Take away the soft-drink leadership of Coca-Cola in the world,' I'd give it back to you and say it can't be done."

Over the last year, KO shares have risen more than 20%. Even with this advance, the short float is tiny. Now trading about $38.80, Coke's stock has a mean analyst target price for over the next year of market action of $41,63.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , International , Stocks

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