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3 reasons to buy Coca-Cola Amatil Ltd

Coca-Cola Amatil Ltd (ASX: CCL) shareholders were forced to remain patient throughout 2013 as their shares heavily underperformed Australia’s other blue chip stocks and the broader S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO). Unfortunately, the beginning of 2014 hasn’t been ideal either, with the shares having fallen even further, hitting a fresh 52-week low of $11.30 before recovering to today’s price of around $11.80.

With shares having dropped so dramatically (they are down over 23% since hitting a high of $15.43), is this an opportunity to add the company to your portfolio? I certainly think so, and here are three reasons why:

  1. Brand Strength: Coca-Cola, as well as many of the company’s other brands, are amongst the most popular in the world. In fact, Warren Buffett once described its parent company, The Coca-Cola Company (NYSE: KO), as a “forever brand”. Companies like CCA can help to form a strong foundation for any portfolio and while prices are down, investors can also take advantage of its 4.7% dividend yield.
  2. Growth Prospects: CCA’s Australian beverage business accounts for around 70% of the group’s overall earnings, however, the company is making a huge push into the enormous Indonesian market where the population is some 10 times larger than it is in Australia at around 250 million people.
    Currently, the average Indonesian consumes 14 Coke products a year, while in comparison, the average Aussie consumes over 250 products per year. When the company delivered its interim results in August 2013, it reported 15% growth in volumes and earnings for the region and that number will remain strong as CCA increases its manufacturing capacity and cold drink coolers.
  3. A bright future: Pricing pressures from Woolworths Limited (ASX: WOW), Wesfarmers Ltd (ASX: WES) and rival Schweppes were the primary reason behind CCA’s profit decline for the year (a 7.5% decline in net profit is expected to be announced when the company reports next week). However, a Citigroup report shows that the aggressive discounting may be over with Schweppes having increased its product prices while CCA has followed suit. This will result in higher margins for its core products and should improve profitability going forward.

Foolish takeaway

Buying quality brands at discounted prices and holding on for the long-term can be one of the greatest ways to build your wealth. With signs looking more and more positive for the road ahead, now could be the perfect time to add Coca-Cola Amatil to your portfolio.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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