As a value investor I'm constantly searching for the stocks in the red to see if i can find a bargain. Coca-Cola Amatil (CCL) have come out within the past few weeks and released a 15% downgrade in earnings. I haven't read too much into this as I've been quite busy with other stuff, but from my limited understanding here's how i paint the picture for CCL. Their operations in Australia are strong but are coming under pressure from their main buyers; Coles and Woolworths. This is leading them to bring prices down and erode their margins. Sales are relatively flat in Australia (and much in the advanced world, as seen by Coca-Cola Company (THE)). Much of the growth is being driven by emerging markets.In relation to CCL, the problem is exacerbated by Pepsi's intense price competition (prices cut by about 33%) i'm not too sure what's going on with Pepsi but i know they've been bought out by the Japanese beer company Asahi.This pressure in conjunction with pressure from Coles/Wow is not painting a pretty picture for Coke.
What do i think? I believe given Cokes relatively stable earnings power for some time, they are a good buy. However, not a good buy for everyone. I think coke is a defensive stock and thus if you're at a certain spot on a risk profile landscape such as one who is approaching retiring (in about 7-10 years) this could be a good buy. I don't think it's fallen far enough for me as i can afford to lose, thus the gains that one should expect from this stock over the next few years, is unlikely to match my preference. Having said this, i;m waiting to see what Cokes next few annual reports look like to see if they miss forecasts again and the price can fall further. If it falls far enough I'd be happy to buy it. But at current prices, it's not low enough for me. I'm confident in CCL's ability to continue to deliver in the medium to long term.
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