Shares of The Coca-Cola Company (NYSE: KO) jumped about 1.3% on a day when many investors plowed back into equities. This came after the Trump administration announced a 90-day pause on reciprocal tariffs. However, KO stock only dropped about 6% since the tariff sell-off. That was consistent with the 6.8% average for consumer staples stocks.
So, it stands to reason that Coca-Cola's gains would be muted compared to beaten-down technology stocks. However, the question is, will KO stock be one to hold onto after the relief rally runs out of steam?
Many analysts say it’s time to go defensive. And Coca-Cola has a reputation for being one of the top defensive stocks. Much of that reputation comes from the stock’s link to Warren Buffett. The stock is one of the top holdings of Buffett’s Berkshire-Hathaway (NYSE: BRK.B), and Buffett rarely makes a public appearance without the company’s product in hand.
Legendary fund manager Ken Fisher is also betting bullishly on KO stock. He believes that 2025 will be a year when value beats growth. But Coca-Cola hasn’t been living up to its reputation as a value among defensive stocks. This is a reminder that a company and its products can differ from its stock.
A Decentralized Supply Chain and Expanded Portfolio
Calling this a volatile market would be an understatement. Early in the day, the market was clinging to tepid gains while investor sentiment remained sour. Then, the tariff pause was announced, sending stocks sharply higher. Once the initial reaction settles, the focus will shift to identifying which companies can serve as effective tariff shelters.
If that’s the case, then Coca-Cola and other companies like McDonald’s Corp. (NYSE: MCD) have something that fundamental investors love: outsourced, asset-light business models. In the case of Coca-Cola, it sells syrup and concentrate to its network of bottling partners. It doesn’t manage or control those partners. That’s why the company’s 2024 operating margin of 29.8% was nearly as high as Apple Inc. (NASDAQ: AAPL), which came in at 31.5%.
Putting tariffs aside, Coca-Cola wouldn’t be a compelling investment in 2025 based solely on its iconic soft drink business. Between the push to "Make America Healthy Again" and the growing popularity of GLP-1 drugs, Coca-Cola’s traditional portfolio faces increasing pressure.
However, the company has been taking steps to adapt to changing consumer preferences. Its portfolio now extends beyond soft drinks to include sparkling water, bottled water, coffee, and protein drinks—a shift that positions Coca-Cola for growth in a more health-conscious market.
KO Stock Takes Away the Guesswork
There are plenty of reasons often cited to avoid KO stock. Here are a few of the most common:
- KO stock is expensive; even after this recent dip, it’s still trading at 23.5x forward earnings.
- Slower growth in the company’s free cash flow (FCF)
- Although it’s a dividend king, the dividend yield isn’t growing as fast as many investors would like.
- KO stock has a history of underperforming the market during bear markets.
- The emergence and popularity of GLP-1 drugs puts a level of risk on the stock that may not be priced in.
Many investors simply prefer PepsiCo Inc. (NASDAQ: PEP) because of the added benefit of a snack food portfolio.
[content-module:Forecast|NYSE: KO]So why should investors consider owning the stock during these turbulent times? Because at times when it’s hard to find certainty, stocks that take away the guesswork stand out. That’s what investors get from owning KO stock, which has delivered a 10-year total return (stock price growth and dividends) of 133%. By comparison, PEP stock has delivered a total return of 100% over the same period.
For investors focused purely on growth, there are better stocks to consider. The same is true for those seeking the best value. However, those are short-term reasons to overlook a stock built for the long term. For those with a longer time horizon, there’s no better time than now to let KO stock start delivering.
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