Q. I own shares of Coca-Cola Co. They haven’t done as well as I’d hoped in recent years. What are the prospects?
–J.T., via the Internet
A. Although it is one of the most recognizable brands on the planet, not everyone believes “Coke is it.”
The world’s largest beverage-maker is enjoying solid gains in important markets such as Latin America, China and Eastern Europe. But recent sales in areas such as North America, India and Germany have fizzled. Should they improve, the firm’s future prospects will become much brighter.
Coca-Cola, Diet Coke, Sprite, Fanta, Fresca, Minute Maid, Dasani, Powerade and Nestea are among the company’s well-known products. With 70 percent of its sales now outside the U.S.–in more than 200 countries–future potential is tied to overseas growth.
Shares of Coca-Cola (KO) are up 1.3 percent this year following last year’s 18 percent decline. PepsiCo Inc. shares have outperformed Coke since the end of 2003, but Coca-Cola still has a strong balance sheet and considerable cash to buy back shares and pay dividends.
Wall Street’s confidence in its ability to meet earnings expectations is improving, but Coke’s executive suite has had turnover. Irish native Neville Isdell, chairman and chief executive since June 1, 2004, is its third CEO since the death of Roberto Goizueta in 1997.
This beverage giant is often a regulatory target. It recently signed an agreement with the European Union to prevent it from stopping cafes in 27 European countries from serving rival brands. There’s a stipulation that no agreements with European vendors to sell its products can exceed five years.
Earlier this year it settled with the Securities and Exchange Commission on charges that it had failed to disclose shipments of beverage concentrate made to Japanese bottlers in the late 1990s so it could meet earning expectations.
Of concern to its overall industry is a law to add high schools to a ban on the sale of soft drinks during school hours in middle and elementary schools in California.
Because its current stock price probably doesn’t fully reflect its formidable long-term potential, the consensus rating on Coca-Cola shares is a weak “buy,” according to Thomson Financial. That consists of four “strong buys,” six “buys” and eight “holds.”
Earnings are expected to rise 3 percent this year versus the 3.4 percent expected for the soft drink industry. Next year’s expected 8 percent rise compares with 9 percent forecast for its peers. Coca-Cola’s projected five-year annualized growth rate is 8 percent versus 9 percent industrywide.
Q. What is your opinion of American Funds Growth Fund of America? I’ve held it for years and wonder if it’s still a good bet.
–D.L., via the Internet
A. The biggest stock mutual fund of them all continues to perform well and attract assets.
In fact, it is so large that it has eight portfolio managers. Each independently manages a portion of its $114 billion in assets with a flexible growth strategy in mind. Its diverse portfolio means less risk than most other large-growth funds and its annual expense ratio is a low 0.70 percent.
American Funds Growth Fund of America “A” (AGTHX) had a total return of 13 percent over the past 12 months and has a three-year annualized return of 20 percent. Both results rank in the top 11 percent of the large-growth fund category.
If there is any drawback to being so popular, it is greater difficulty in establishing and exiting positions than a smaller fund encounters.
“This has been a very successful fund in both up and down markets, but the concern is that it is hard to put that much money to work and continue to find new ideas,” said Paul Herbert, analyst with Morningstar Inc. in Chicago. “Publicly, American Funds said it has looked at closing it to new investors, but it has never closed a fund before.”
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Although this fund can be a solid core holding for an individual’s portfolio, it should be balanced by value and small-cap holdings, Herbert said.
Besides the 10 percent of the fund in cash, energy comprises 16 percent of the stock portfolio and technology hardware 14 percent.
American Funds Growth Fund of America “A” requires a 5.75 percent “load” (sales charge) and minimum initial investment of $250.
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Andrew Leckey is a Tribune Media Services columnist. E-mail him at [email protected].