Why Coca-Cola Stock Trounced the Market in April

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What happened

Coca-Cola (KO 0.36%) shareholders were feeling bubbly last month as their stock gained 4% compared to a 9% slump in the S&P 500, according to data provided by S&P Global Market Intelligence.

The outperformance was powered by a shift in demand away from formerly high-growth tech stocks and toward stalwart dividend payers like Coke. It also reflected growing optimism in the beverage giant’s earnings prospects.

Image source: Getty Images.

So what

On April 25, Coke executives revealed that the company is enjoying some of its best growth in years. Organic sales jumped 18% in early 2022, or at about double the growth pace as in the prior quarter. Coke is benefiting from a big rebound in consumer mobility following earlier phases of the pandemic. Other factors driving sales higher include robust consumer spending and high appetites for premium on-the-go beverages, especially energy drinks.

Investors are also flocking to the stock in search of stability. Coke’s profit margins are holding near record highs despite soaring costs, and the company has plenty of cash it can direct toward shareholders in the form of dividends and stock buybacks.

These payments can protect investor returns in a declining market, especially if shareholders choose to automatically reinvest their dividends.

Now what

CEO James Quincey and his team affirmed Coke’s full-year outlook in late April. They still see organic sales rising by 8% this year after sales soared 16% in 2021.

That stability was impressive considering new challenges to the business, including suspended operations in Russia, new COVID-19 lockdowns in China, and accelerating inflation around the world. Coke is steadily winning market share in the massive beverage industry, and profitability is rising as shoppers continue to move toward its more premium products.

That operating success, combined with Coke’s financial strength, makes it an attractive stock through any investing environment. But the attraction is even stronger today, when investors are worried about slumping demand in niches like digital entertainment and e-commerce that had been big winners in earlier phases of the pandemic.

Sure, Coke likely won’t see another 16% organic sales surge like it enjoyed in 2021. But its latest results suggest that investors can count on steadily rising market share, improving earnings, and gushing cash returns from owning this business over the long term.