Posts Tagged ‘ko’
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Happy 125th Birthday, Dow Jones Industrial Average!
Eddy Elfenbein, May 26th, 2021 at 9:01 amThe Dow Jones Industrial Average (DJIA) was born 125 years ago on May 26, 1896. To give you an idea of how long the Dow has been around, its birth is closer to the Declaration of Independence than it is to today.
The index was the brainchild of Charles Dow, who was the editor of the Wall Street Journal. When the index started, it only had 12 stocks. The list grew to 20 stocks in 1916, and it reached its present total of 30 stocks in 1928.
The index has only changed 55 times over the last 124 years. In fact, the Dow has had two separate streaks of going 17 years without a single change — once from 1939 to 1956, and again from 1959 to 1976.
Until recently, General Electric (GE) was the only one of the original 12 from 1896 left in the index, but GE was removed two years ago. A few stocks have been long-time members. ExxonMobil or Standard Oil of NJ (XOM) has been a member since 1928. Procter & Gamble (PG) joined in 1932. A few other stocks like Coca-Cola (KO) and International Business Machines (IBM) were taken out only to be put back in.
The Dow’s history with IBM is a good investing lesson. The keepers of the index decided to kick out IBM in 1939 only to change their minds 40 years later and bring it back. Over those 40 years, shares of IBM soared 22,000%.
Oops.
If IBM had been in the index, the Dow would have broken 1,000 in 1961 instead of 1972. By my rough estimate, the index would be over 4,000 points higher today. If that wasn’t bad enough, the Dow was subsequently punished by IBM’s addition in 1979 as that marked a period of slow growth for the company.
I can’t hide my feelings. I think the Dow is a lousy index. I rarely refer to it here on the blog. The reason is that it’s just 30 stocks and the index is weighted by price instead of by market value. Perhaps that made sense 80 years ago, but it’s not needed today. The only reason the Dow is still in the news is because the index is owned by the Wall Street Journal.
Still, I have to give credit for Charles Dow for starting the index. Anything that’s still quoted 125 years later deserves a tip of my cap.
Here’s to 125 more!
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Is Coke Being Valued Like a U.S. Treasury?
Eddy Elfenbein, October 18th, 2012 at 11:19 amI’m still surprised by the high price that Coca-Cola ($KO) is fetching. The stock closed yesterday at $37.74 which isn’t far from a 52-week high. I just don’t see how that’s justified.
Let’s look at some numbers. Earlier this week, the company reported Q3 earnings of 51 cents per share which matched Wall Street’s estimate. As we’ve come to expect with companies that do a lot of business outside the U.S., the strong dollar took a bite out of Coke’s profits. Revenue rose only 1% to $12.34 billion which was $70 million shy of Wall Street’s estimate. The rising greenback knocked five percentage points off revenue growth and seven points off operating income growth. That’s unfortunate but I doubt that headwind will last.
Still, Coke is going for 17.1 times next year’s earnings estimate. I just don’t see how Coke can justify an above-market premium in an environment like this. Coke’s earnings growth for the next five years is estimated to be 7.43% which is 2.75% less than what’s expected of the S&P 500.
The current quarterly dividend is 25.5 cents per share which makes the payout ratio exactly 50%. For the S&P 500, the payout ratio is running close to 30%. Even with that high payout ratio, Coke’s dividend only comes to 2.7%. Many high-quality stocks pay yield much higher than that right now.
By my math, Coke’s fair value is close to $26. Perhaps investors see the Coke brand as similar to a U.S. Treasury. After all, there aren’t many better representatives of American capitalism than Coca-Cola. I think this way of thinking is a huge mistake, but I can see how investors can reason a 17 P/E for Coke in a world where a five-year Treasury has a P/E of 130.
The major mispricing in the market right now is that investors are vastly over-paying for security, and they are under-paying for risk. I think this will slowly unwind—in fact, it’s already started. That explains why U.S. stocks have advanced this year even as earnings estimates have come down. The market is slowly reverting to normal.
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13 Stocks to Avoid
Eddy Elfenbein, May 14th, 2012 at 10:58 amHere’s a list of 13 stocks that are way, way, WAY overpriced. I listed Friday’s closing price with each stock.
Amazon ($AMZN), $227.68
Motorola Mobility ($MMI), $39.23 (getting bought by Google)
Salesforce.com ($CRM), $137.78
Netflix ($NFLX), $77.38
Coke ($KO), $77.47
Whole Foods ($WFM), $88.54
Costco ($COST), $84.60
Stericycle ($SRCL), $83.24
Starbucks ($SBUX), $55.01
Nike ($NKE), $108.26
Ariba ($ARBA), $39.17
Chipotle ($CMG), $408.25
Intuitive Surgical ($ISRG), $558.95
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Coke Nears All-Time High
Eddy Elfenbein, March 29th, 2012 at 10:30 amAlthough the stock market is down this morning, shares of Coke ($KO) are at a 52-week high. In fact, the stock is at its highest point in more than 13 years. It’s interesting that the company hasn’t been able exceed its high from July 1998.
When you look at the chart, it’s interesting to see how much smoother the line has become over the years. It’s gone from highly jagged to pretty stable.
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Coke Raises Dividend for 50th Straight Year
Eddy Elfenbein, February 17th, 2012 at 9:33 amCongratulations to Coca-Cola ($KO). The soft drink company just raised its dividend for the 50th year in a row. Coke bumped up its quarterly dividend from 47 cents per share to 51 cents per share. That’s a dividend increase of 8.5%. Based on the new dividend, KO now yield 2.96%.
Here’s a list of the longest current dividend raising streaks (via Dynamic Dividend):
Eddy Elfenbein is a Washington, DC-based speaker, portfolio manager and editor of the blog Crossing Wall Street. His