Considering the performance of Coca-Cola Amatil Ltd (ASX: CCL) over the last 14 months or so, you can hardly blame investors for wanting to steer clear of the stock. In fact, since May 2013, the shares have plunged a massive 38.1% while the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has piled on 6.8%.
And truth be told, the plunge has largely been justifiable. A pricing war with Schweppes, a struggling SPC Ardmona business and pressures from Woolworths Limited (ASX: WOW) and Wesfarmers Ltd's (ASX: WES) Coles business have contributed to declining profits. In addition, concerns have also arisen regarding the company's growth potential in Indonesia as well as changing consumer trends.
That's a lot for investors to take in, and when the company issued numerous profit warnings as a result, the share price was destined to plunge.
While that is terrible for shareholders who bought the stock near its peak, it is fantastic news for the rest of us. We have been given the opportunity to buy shares in one of Australia's strongest and most recognisable companies at a price not seen since the aftermath of the Global Financial Crisis. I certainly took up the opportunity to buy shares at $9.39 (and I'm strongly considering buying more).
Why you should buy today
Although there could be further volatility in the near term, the long term is still looking very appealing for shareholders who buy today. Here are five reasons why you should consider adding Coca-Cola Amatil to your portfolio now…
1) The pricing war with Schweppes has certainly left its mark on Coca-Cola Amatil, but the same needs to be said for Schweppes itself. In aggressively discounting its prices, its own margins and profitability have also been affected – Schweppes cannot keep up these low prices forever!
2) Coca-Cola's brands are amongst the strongest in Australia, if not the world. That's highly unlikely to change, even if Schweppes do continue to steal shelf space.
3) Warren Buffett acquired his shares in The Coca-Cola Company when they were in a similar rut. That investment has proven to have been one of his most successful of all-time (and we all know how successful Buffett has been).
4) A strategic review being undertaken by the Group's new Managing Director, Alison Watkins, will target unnecessary costs and productivity improvements. Broker CIMB has even suggested that up to $100 million in annual costs could be removed (that's certainly one way to improve profitability).
5) Interest rates are tipped to remain at 2.5% for some time yet, while Goldman Sachs has even suggested they could fall as low as 2.25%. Those rates make the stock's estimated grossed up 6.5% dividend yield look very, very tasty.
An even better bet than Coca-Cola Amatil
I happily own Coca-Cola Amatil shares. The long-term investment thesis remains intact and the solid dividend yield will bode very well for my portfolio over time.
