Coca-Cola is one of the dominant consumer staples companies.
But it’s not the only one, and its stock is looking a little expensive today.
Another famous name — Hershey — offers a high yield and attractive valuation.
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Coca-Cola (NYSE: KO) is a great business, but that doesn’t mean it is a great stock to own. In fact, to paraphrase famous value investor Benjamin Graham, overpaying for a great company can turn it into a bad investment. If you are considering this consumer staples giant, here’s why you might be better off buying something completely different.
Coca-Cola makes beverages. In fact, it is one of the largest beverage makers on the planet, with a distribution network that is top-notch, a powerful marketing team, and strong R&D skills. As a business, it is highly attractive. But what about as an investment?
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Right now, Coca-Cola’s price-to-sales, price-to-earnings, and price-to-book value ratios are all above their five-year averages. It is hard to escape the fact that the stock is expensive today. If you bought it and held it for long enough, you’d probably end up OK, but overpaying could lead to some near-term trepidation if the stock’s valuation reverts back toward the mean.
If you are seeking a stock that looks attractively priced, you’ll be better off with The Hershey Company (NYSE: HSY). Despite material cost headwinds, this confection maker is still growing its business. That speaks to a potentially bright future if its valuation metrics return to their longer-term averages.
Starting with the stock price, Hershey’s shares have fallen around 45% from the all-time high they reached in 2023. That has pushed the dividend yield up to a historically high 3.6%. The stock’s price-to-sales, price-to-earnings, and price-to-book value ratios are all below their five-year averages. Essentially, Hershey looks cheap while Coca-Cola looks expensive.
There’s a reason, of course. Hershey is facing a severe cost headwind thanks to the massive increase in…
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