Things Go Better For Coke In some ways, the stock looks like a sell. But the soft-drink maker is moving in the right direction, and so is its stock
By Stephen Gandel

(MONEY Magazine) – Imagine for a minute that soft-drink giant Coca-Cola (KO) was in another line of business. Suppose it made a hugely successful generic cough syrup. And now consider these facts: U.S. sales of its main product are declining; the company has lost many of its senior managers, with CEO Douglas Daft already planning his retirement; and the Securities and Exchange Commission is reportedly investigating its books. Its available cash won't cover its debts, and it pays just a 1.9% dividend. Oh, and its stock trades at a premium to the market. Even a 1990s Wall Street Internet analyst could call this one. Sell.

Of course, this company doesn't sell cough syrup. It sells Coke, still one of the best-known brands in the world. And if you believe that brands are worth a lot, this stock looks more attractive right now. At a recent $52, Coke trades at 25 times expected 2004 earnings--way ahead of the S&P 500's P/E of 18, but near the low end of Coke's own 10-year range. And Coke's operations are in better shape than they have been in a long time. New products like Vanilla Coke have been successful. Management has refocused on profits instead of volume. The company's sales rose 13% in the first quarter, and earnings were up an impressive 35% (the falling dollar helped). "This is a great stock to overweight in an improving global economy," says Sandy Sanders, an analyst at Evergreen Investments, which owns 2.3 million shares. A boost for the shares could come as soon as Coke's board selects a new CEO.

Coke still has problems. It is a mature business in a shrinking market. Low-cost brands such as Wal-Mart's Sam's Choice are cutting into sales. So when the stock gets to $60, we would sell.

For a more adventurous play on the Coke brand, consider Coca-Cola Hellenic Bottling (CCH). The company bottles and sells Coke in Greece and much of Eastern Europe. That positions it well to see sales increases from this summer's Olympic Games and, long term, from the expansion of the European Union. At $27, its shares have a P/E of 19 (based on 2004 earnings). That's higher than U.S. bottler Coca-Cola Enterprises, at a P/E of 17, but Hellenic's earnings over the next five years could grow almost twice as fast as those of its U.S. counterpart. --STEPHEN GANDEL