The Coca-Cola Co (KO) Stock: Bill Ackman Holds His Punches

The Coca-Cola Co (NYSE: KO)

A recent feud between celebrity investors Charlie Munger and Bill Ackman ended with Ackman calling The Coca-Cola Co an immoral business. This led many investors to wonder whether or not KO would end up being Ackman’s next target. However, the activist investor, known for purchasing large short positions to damage publicly traded companies, decided to hold his punches. Now, investors are asking, “Is KO a good investment to make?” Today, we’ll talk about the celebrity feud and why Ackman likely held back. We’ll also take a look at KO to decide if it is indeed a good investment or not.

The Celebrity Feud Surrounding KO

The feud that started the questions with regard to The Coca-Cola Co started as Charlie Munger took a shot at Valeant Pharmaceuticals (NYSE: VRX). Munger said that VRX increasing the price of prescription medications is a “deeply immoral” business practice. However, Bill Ackman happens to be heavily invested in VRX. So, he clearly didn’t like this statement. So, he decided to attack a company that Munger is heavily invested in, KO. In his attack, Ackman stated that KO is, in his opinion, “deeply immoral” because the company displaces the “water children consume with sugar water”, ultimately stating that KO “does enormous danger to society”.

Why Bill Ackman Held Back

Following the statements above, many investors expected for Bill Ackman to enter a large short position in The Coca-Cola Co in order to drive the stock down. However, that didn’t happen, and for good reason. While Bill Ackman clearly has a gripe with KO, this isn’t his normal target. Ackman generally attacks companies that have done something illegal or have misled or mistreated investors in one way or another. That’s not the case here. In fact, KO share holders know that the company has a strong history of treating its investors great and that it hasn’t broken any laws. Sure, high sugar drinks aren’t good for children, but it’s not against the law to manufacture them!

Is The Coca-Cola Company A Strong Investment?

While Bill Ackman decided to hold his punches with regard to KO, that doesn’t mean that it’s a good investment choice. In fact, I don’t believe that at the current price, KO is a smart move at all. The reality is that the company is struggling at the moment and is likely to continue struggling. Here’s why…

  • Consumer Health Awareness – First and foremost, consumers are becoming more in tune with what’s healthy and what’s not. While it’s not illegal to manufacture high sugar drinks, it’s also not healthy to drink them. As consumers continue to gravitate toward more healthy beverage options, sales at The Coca-Cola Co are likely to continue declining.
  • USD Strength Spells Bad News – KO is a company that does the majority of its business outside of the United States. This means that when the dollar is strong, KO products become more expensive in other nations. As we’ve seen several times in the past, when prices go up, demand declines. While the dollar is high at the moment, it’s only going to get higher. An interest rate hike from the Federal Reserve is all-but guaranteed to happen in December. Higher interest will drive the value of the dollar up and lead to more international headwinds for KO.

I’m not saying that KO is a bad company here. In fact, I believe that the company has done incredible things and will likely continue to do so. However, now is simply not the time to invest. Once currency values normalize, sales will start to pick up. From there, it will be time to start looking for low valuation periods in order to pick the stock up at a discount. Nonetheless, now simply isn’t the time!

What Do You Think?

Where do you think KO is headed and why? Let us know your opinion in the comments below!