How to Buy Coca-Cola (KO) Stock

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Contributor, Benzinga
Updated: July 14, 2021

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It is hard to find a more globally present brand other than Coca-Cola. For over 100 years, it has been a top choice soft drink all over the world.

Although always looking to innovate, The Coca-Cola Company (NYSE: KO) is lagging the industry — giving an opportunity to invest in the catch-up.

Are you looking to diversify your portfolio with a dividend-yielding defensive stock? This short guide will show you how to buy stocks, including KO.

How to Buy Coca Cola (NYSE: KO) Stock

Step 1: Pick a brokerage.

The easiest and the most convenient way to buy stocks is through a brokerage. This company acts as a regulated intermediary between you (the investor) and the stock market. Due to technology, you can now buy and sell stocks through a broker’s web platform or even a phone app.

If you’re a first-time investor, our guide on the best brokers will help you decide which platform is the best choice for you.

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Step 2: Decide how many shares you want.

The number of shares you buy depends on share price, risk management strategy and your portfolio size. To make your choice simpler, set a budget, divide that budget by the current share price and you know how many shares you can purchase.

In the interest of diversity, you might spend a percentage of your budget on Coca Cola stock, allowing this longstanding stock to serve as your safest investment.

As KO currently trades in the mid-$50 range, choosing a broker that offers fractional share ownership might not be necessary for you. However, there is merit in purchasing a single stock, especially one with a solid track record like Coca Cola. Most people start investing with small amounts of money. As your investment grows, so, too, does your confidence in the marketplace, and it’s easier to see those results with stable investments.

Finally, you must consider any brokerage fees attached to your trade. Add them to your expected order total so that you know how much you are truly spending when completing a transaction.

Step 3: Choose your order type.

There is more than one way to instruct a broker on how to buy shares. Thus, it is necessary to understand the basics before investing. If you are new to a certain broker’s platform, make sure you practice on demo accounts before executing a live trade.

  • Market order: This is the simplest order that instructs the broker to buy or sell shares right now, regardless of price. This is also the fastest way to buy or sell a stock but you might get a slightly worse entry price.
  • Limit order: This order will execute only at a specific price or better. A limit order is handy if you are waiting for a specific price at which you want to buy.
  • Bid: This is the greatest price a buyer is willing to pay at the moment.
  • Ask: This is the smallest price at which the seller is selling at the moment.
  • Spread: The spread is the difference between the bid and the ask. For example, if the bid for KO is $53.21 and the ask is $53.23, then the spread is $0.02. A smaller spread is a sign of good liquidity in the market.

Step 4: Execute your trade. 

Once you have selected and executed the trade, your broker will enter the position for you. You officially own the shares from the moment the order has been filled — all the details will be on your broker’s statement.

KO Stock History

The Coca-Cola Company is an American multinational corporation. Founded in 1892, it is one of the largest beverage companies in the world. The company built its success on a carbonated soft drink invented in 1886 by pharmacist John Stith Pemberton. It operates as a franchised distribution system, supplying the syrup concentrate to bottlers who hold the distributing rights. Besides Coca-Cola, the company’s portfolio features other valuable brands including Diet Coke, Fanta, Sprite, Vitaminwater, Powerade, Minute Maid and Costa Coffee. Headquartered in Atlanta, Georgia, the company has 80,300 employees and a market cap of $229.2 billion.

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KO stock chart, Screenshot from Benzinga Pro on 4/08/2021

The chart shows that the stock has not yet recovered from the 2020 downturn. The current position between the strong support at $52 and strong resistance at $54 shows indecisiveness of investors. Yet, the bias is on the bullish side. A successful breakout followed by a retest and rejection of the $54 level will open the doors to a new all-time high.

KO Restrictions for Retail Investors

Two main restrictions for retail investors can be IPO exclusion and secondary offering limits.

Needless to say, there are no IPO restrictions. Coca-Cola held an IPO back in 1919, at a price of $40 per share. One share in 1919 would be equal to 9,216 shares today (adjusted for stock splits), or $488,000 at the current share price. With quarterly dividends reinvested, it would be over $10 million.

Also, there are no secondary offering limits. Given the superior profit margins, it is not a surprise that the company prefers to take on debt (instead of diluting the shareholders) to raise capital for short-term emergencies like the COVID-19 pandemic.

Pros to buying KO

  • Brand strength: Coca-Cola is one of the most recognizable brands of all time. It is the most valuable beverage brand and the strongest brand in the U.S. Through the decades of brand management, Coca-Cola’s success in building the brand through continuous innovation is now in marketing textbooks.
  • Operational advantage and restructuring: By the end of 2020, Coca-Cola had a net profit margin of 23.47%. This is ahead of the competitors like PepsiCo (10.12%) or Keurig Dr Pepper (11.4%). Additionally, the company announced restructuring efforts with a plan to reduce a portfolio from 400 to 200 brands while losing just 1% of revenue. This will allow them to focus on expanding the subsidiaries like Costa Coffee (acquired in 2019), which is the 2nd-largest coffeehouse chain in the world.
  • Low volatility: KO is a low-volatility stock. With a 5-year average beta of 0.62, it is below the industry average of 0.74. With volatility being a risk-modeling standard, low volatility stock is an attractive candidate for every portfolio — especially knowing that low beta stocks have historically outperformed the market.
  • Stable dividend: Paying quarterly dividends since 1920, KO is truly one of the dividend aristocrats. The current dividend yield as of March 31, 2021, is 3.12%

 Cons to buying KO

  • Underperforming industry: Despite all efforts, the company has been underperforming the market in the last decade. Although it would be unfair to pit it against the whole market (that flew on the tailwinds of the technology sector), here it is compared with the consumer staples sector.
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KO underperforming the sector, Screenshot from Benzinga Pro on 4/08/2021

  • High debt to equity: The balance sheet is rather mediocre, featuring a high debt to equity ratio of 2.22. The debt-to-equity ratio shows how much growth is financed by the debt. Average values vary between the industries but they should not be above 2.0.
  • Cultural controversy: Company recently faced significant backslash after LinkedIn Education training “Confronting Racism” leaked on social media. Facing the potential brand damage, the content provider withdrew the material from the course library. Despite virtue-signaling being an attractive corporate strategy — a company that relies on brand management should know how fragile brands are.
  • Hard to classify: At 29.5 its price-to-earnings ratio is too high to consider it an attractive value stock. Meanwhile, given the age and mediocre growth prospects, it is not a growth stock. It could be a good dividend prospect but not at the current price. If the stock market is the battlefield, KO is on no man’s land at the moment.

America’s Real Choice

Coca-Cola has been a value investor choice for many decades. As a low-volatility stable dividend provider, it is a suitable pick for both retail and institutional investors. Yet investors have to be aware of the price they are paying. The largest risk in investing does not come from poor quality, it comes from buying at prices that are too high.

Although the company faced some headwinds in the last decade — if it successfully restructures its portfolio and avoids getting involved in cultural or political issues, it will be a good turnaround story.

Frequently Asked Questions

Q

Did Coca-Cola ever contain cocaine?

A

Originally two key ingredients were coca leaf extract and caffeine. The second originated from the kola nut (also known as cola nut) – giving the name Coca-Cola. At the time, cocaine was a legal substance and often used as medicine. Coca extract was part of the formula until 1929.

Q

Can you get addicted to Coca-Cola?

A

It is possible to get addicted to any soft drink. This is predominantly because they contain potentially habit-forming substances like caffeine, sugar or artificial sweeteners. Therefore, soft drinks have to be enjoyed in moderation, as a small part of your diet.

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