Coca-Cola Amatil Ltd (ASX: CCL) has been out of the market's favour over the last year or so. Since hitting an all-time high of $15.43 in March last year, the stock has tumbled in spectacular fashion to be sitting at just $9.25 today. That's a drop of 40.1%.
In comparison, the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) index has jumped 8.7% in the same time span. Needless to say, investors are obviously bearish on the company's ability to return to strength and deliver solid profits.
However, I have good reasons to believe the market is wrong on this one. Here are five reasons why I think the company would be sound investment today.
1) Amazing yield. Forecasts provided by Morningstar suggest the company will distribute 51 cents per share in 2015. That's a dividend yield of 5.5%, franked at 75%!
2) "Forever Brand". Coca-Cola is one of the world's strongest and most recognisable brands in the world. In fact, it has even been described by Warren Buffett as a "forever brand". Whatever happens in the near term won't stop that from being the case.
3) White Flag. The pricing war with primary rival Schweppes is a major reason behind Coca-Cola Amatil's recent profit woes. What needs to be remembered however, is that the pricing war is also affecting Schweppes' own margins. It can't keep up these aggressively competitive prices forever!
4) Cheap. Not only is the stock sitting near its lowest level since mid-2009, it is also trading on a P/E ratio of 15.4 which compares to the ASX's average P/E ratio of 16.5. It seems the problems facing the business are already largely priced into the shares, leaving less downside risk and greater upside potential.
5) Costs. Sales and other revenue make up one side of the profit equation while total costs make up the other. A strategic review being undertaken by the company's new managing director, Ms Alison Watkins, is focused on cutting unnecessary costs. Some analysts suggest up to $100 million in annual expenses could be removed!
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Despite its recent woes, Coca-Cola Amatil is one of the better stocks you could be buying right now as it has the potential to deliver fantastic returns in the long-run.
