1 Tip For Picking the Next Coca-Cola Stock
Today, Coca-Cola is one of the most recognizable brands in the world. But before the 1920s, it was a private company. Though highly successful and wildly popular in the U.S., Coke had lots of competitors.
It wasn’t yet the renowned company it is today…
In 1906, Coke was sold in brown beer bottle-type glass with a paper label. The young company had to deal with newspapers misspelling its name as “Coco-Cola” on a regular basis — a far cry from the multibillion-dollar corporation we know now.
It wasn’t always smooth sailing for Coke, either. So how did it become the success that it is?
Bumps in the Road
Well, it wasn’t without difficulty. In 1919, a group of private investors bought the company from its founders for $25 million. The next year, they took Coke public at $40 a share. Because of Coke’s strong finances, the company announced its intention to pay a dividend — something that a new company doesn’t typically do.
However, Coke had two problems to face following World War I: a national recession, and the rising cost of sugar. The company quickly realized that it would not be able to afford to pay for both investor dividends and high-priced sugar. So, its directors postponed the dividend.
As you can imagine, shareholders weren’t pleased. By the end of 1920, Coke stock was down more than 50% from its initial public offering (IPO). Thankfully, it had one quality that I believe to be key.
Recipe for Success
If there’s one thing I’ve learned in my years as an investor and former journalist, it’s this: The best companies — the ones that will live on through good and bad times — are usually ones that generate large amounts of cash flow.
When the price of a company with strong cash flow is temporarily knocked down by the short-term thinkers on Wall Street — like Coke’s was in 1920 — you have a great opportunity to make money.
As a high-cash-flow company, Coke stock doubled in 1921. It doubled again by 1925 … and again in 1926. After that came 2-for-1 stock splits in successive years. And Coke went on to become one of the most iconic brands, and one of the best stocks to own, over the 99 years since its IPO.
I can’t tell you that every company with strong cash flow is going to be the next Coke … but I can tell you that you won’t find the next Coke without strong cash flow.
Jeff L. Yastine
Editor, Total Wealth Insider