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This Iconic Blue Chip Could Bank You 20% Profits by 2014

Jim Woods

The market's been in turmoil lately, with stocks selling off sharply on talk of Fed tapering, concerns over China's slowing growth and problems with its shadow banking system. The latest decline in stocks, bonds, gold and just about every other asset class, shows the dangers inherent whenever you put money to work in the markets. It's times like these that I like to get back to basics when it comes to investing, and that means buying the highest quality companies with the strongest global brands.

So, when I recently went to my go-to list of corporate stalwarts for places to put money to work, I simply opened the refrigerator and popped the top on a can of "the most effective brand in the world."

That brand is Coca-Cola (KO), and the company's iconic soft drink is something that people are going to buy regardless of whether Ben Bernanke tapers or China's PMI misses consensus forecasts.


The designation of "most effective brand in the world" comes from Effie Worldwide, an organization that uses a panel of advertising industry experts to determine the companies with the best brand awareness. Coke was this year's winner, but really, did any of us need a panel of experts to tell us it's an iconic global brand?

Perhaps I'm biased because I've been a Coke drinker for more than four decades, but is there anyone out there in the first or second world between the ages of 5 and 105 that doesn't know about Coke? I think not, and that is the definition of an iconic brand.

Recently, shares of this blue-chip stock came under some selling pressure along with the rest of the market. Since hitting its recent high in mid-May, the stock fell more than 8%, below the $40 level and below the 50-day moving average.

Coca-Cola Stock Chart

Interestingly, the recent pullback in KO comes at the same time the stock's received a lot of love from the analyst community.

SunTrust Robinson Humphrey just initiated coverage on KO with a "buy" rating, and set a price target of $47. An even more positive call was recently made by Credit Suisse analyst Michael Steib. He initiated coverage on KO with an "outperform" rating and a $48 price target.

In his report, Steib argued that KO's recent underperformance when compared to other global large-cap staples represents a value proposition for investors. "KO shares, we believe, [have] the potential to generate returns in excess of the peer group over the next two to three years," said Steib.

Credit Suisse also cited upside in key markets in Asia and the U.S., as well as improved margins and return on invested capital over the next year.

If that $48 price target turns out to hit the mark, it would represent an almost 20% upside move in the stock from current levels. For a Dow component stock like KO, that's a big move over the next year or so. However, I suspect that a 20% gain in the stock is definitely achievable, and in less time.

The key here will be to see if investors return to tried-and-true consumer staples names in an effort to hide out from the recent volatility. If this happens, we could see a spike in KO shares that takes it to that $48 mark by the end of the year.

Recommended Trade Setup:

-- Buy KO at the market price
-- Set initial stop-loss at $36.25, approximately 10% below the current price
-- Set initial price target at $48 for a potential 20% gain in six months

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