Coca Cola Very Attractive OCT, 20 2008

Don't expect me to make a habit of this: Investment opportunity of the decade, COCA COLA (KO).

Coca Cola truly earns an excess of 60% on tangible assets, the result of substantial economic goodwill. (An "inflation hedge" of the purest form.)


Approximately $18-19 billion has been invested into their operating business. In 2001, Coca Cola's net worth was about $11.3 billion. Over the previous 5 years, approximately $7.657 billion of additional owner capital was reinvested into operations which provides for the foregoing $18 & $19 billion.

Owner earnings for 2007, an easy number to calculate for Coca Cola, was about $5.5 billion.

The return on total and incremental capital is about 30%. About half is paid to the owners via dividends, and the other half allocated by Coca Cola's Management (33% or so used for buybacks).

For each $1 reinvested into the operations, about $4 will result in the underlying value of the business' operations. I expect this reinvested amount (in absolute terms) to increase by 8% per annum-a result of their incredible economics. Based upon this alone the company might very well sell in a negotiated transaction today for $100 billion to a business man. (Wall street I imagine would happily pay a minimum of $150.)

Some might add $21 billion thereto to compensate for dividends. They might then justify paying somewhere between $150 & $175 billion for Coca Cola. In the end such a price might not result poorly, but it is not what I consider very attractive either.

I think a reasonable price is $115 billion, though ideally it would be bought for $100 billion. As of Friday it was selling for about $105 billion. Such an inexpensive price for an outstanding company does not offer itself very often. I strongly suggest purchases of large quantities.