The last 18 months or so couldn't have been much worse for shareholders of Coca-Cola Amatil Ltd (ASX: CCL). While the broader market has climbed steadily higher in that time, the beverage distributor's shares have dropped nearly 40%.
With that in mind, there has been much debate about whether the shares should be bought or sold today, or whether investors should simply hold their existing stake for now.
Below, we'll consider arguments for all three cases.
Sell:
This option would have been considered by most shareholders at some stage in the last 18 months. A pricing war with Schweppes, which has resulted in a string of profit downgrades, will likely continue to impact earnings in the near term. Also concerns have arisen regarding the company's growth prospects in Indonesia which were once seen as extremely promising.
As if that wasn't enough, questions have also been raised regarding changing consumer health trends. As consumers become more health conscious, investors are wondering how safe the brand is in the long term.
Hold:
Under the new management of Alison Watkins, the company is undertaking a strategic review which will focus on improving productivity and reducing unnecessary costs. Some estimates suggest up to $100 million in costs could be removed from the business annually.
The company will release its half-year results to the market on Wednesday, 20 August, which should provide an update on how the company is tracking with this review. While the shares could certainly take another tumble following these results, they could also start to climb if there are any signs of improving conditions.
Buy:
Buying quality companies when they are trading at reasonable (if not 'bargain') prices and holding on for the long term is what (capital 'F') Foolish investing is all about. At its current price, Coca-Cola Amatil Ltd fits this bill perfectly.
While the market is focused on the short-term headwinds that could impact the company's earnings, Foolish investors are recognising an opportunity to buy a strong, high-yielding company trading at an unbeatable price.
I took my opportunity to buy shares when they were trading at $9.39, and regardless of what happens next week when the results are released, I will likely be increasing my stake in the near future.
An even better bet than Coca-Cola
I happily own Coca-Cola Amatil Ltd shares, and will likely increase my stake in the near future thanks to its juicy dividend yield and stable of incredible brands.
