Another week closer to what promises to be a pivotal Fed policy meeting, and many areas of the market remain stuck in the bear market zone.
Are you not entertained? That’s a sincere question. If you’re looking for an offramp to get away from volatility, there are plenty of more defensive stocks ready to give you relief.
Just look at Coca-Cola (KO) this morning. Management sees “storm clouds” on the horizon but for now, it’s more about pulling the plug on Russia than any consumption crash here at home.
This is a company that has its finger on the pulse of how Americans and everyone else on the planet are holding up. When budgets get tight or prices start pushing sales away, the sales mix adjusts.
And management knows there’s nothing to lose by keeping Wall Street in that loop. Back in 2008, they started ringing the recession bell as early as late April . . . five months before the ultimate crash.
Fourteen years later, the worst realistic scenario that mighty KO will admit isn’t even “challenging,” let alone “difficult.” As far as anyone can tell, the world has only gotten “highly dynamic and uncertain.”
Maybe sales will start weakening in the next 5-7 months. For now, they’re as strong as ever. Unit volume is up 8% and management remains comfortable predicting overall revenue rising about the same amount throughout this year.
Yes, pulling out of Russia stings. But the rest of the world isn’t cutting back on Coke products. And KO remains a big piece of the global consumer economy.
The sun is shining for Coke. If you’re tired of the Wall Street rollercoaster, this is the kind of stock you can shift into and relax on a slower ride.
Just accept that embracing a lower risk profile means limiting your long-term returns. KO dropped a harrowing 30% in the 2008 crash, which is probably a good sense of how bad it can get here before it gets better.
It took a year to hit bottom and another year after that to fully recover from the crash. Shareholders needed to remain disciplined for about 30 months.
That’s not a trivial amount of time, but it’s a lot better than the lost decade stocks like Amazon (AMZN) had to endure between the dot-com and 2008 crashes. If your patience is not infinite, defense is the place to go.
And over the 14-year period since KO first warned that sales were weakening going into the Great Recession, shareholders have gotten a solid return on their limited patience.
KO was a $60 stock at the peak in early 2008. Since then, it’s paid the equivalent of $31.66 per share in dividends . . . and split, giving shareholders double the amount of stock.
All in all, the “safe” ride has tripled investors’ money in 14 years. Did I mention the effective dividend you could lock in back in 2008 has quadrupled along the way?
Even if you buy in today, you’re “only” earning 2.7% a year in cash . . . but history suggests that by 2040 you’ll be making more than 5% as long as you hold on.
That’s the safe ride, through the deepest recession in recent memory. It doesn’t sound bad, does it?
Of course, the trick is staying on the slow car when it feels like the rest of the market is racing ahead. If you had nerves of steel, you could have bought AMZN at $76 in early 2008 and hung on.
At the low, you would have been 50% underwater and probably feeling pretty bad. But by 2009, AMZN recovered . . . and by 2012, it had already rallied fast enough to deliver everything KO has done ever since.
That’s the joy of really dynamic and disruptive stocks. I don’t recommend them for everyone. The slow road to wealth isn’t so bad.
The important thing is knowing what kind of ride you want. Right now, a lot of investors crave KO and stocks like it. AMZN is hurting.
The mood will turn. It always does. For now, value is winning. And if you’re looking at value, the world actually looks fairly sunny.
KO isn’t buckling under inflation. The company keeps getting smarter and more efficient. Profit margins have gotten fatter since 2008.
There’s more room here to roll with the punches. If anything, this stock has gotten more defensive than ever.