When I buy shares, my ideal holding period is ?forever?.
That is, I strive to buy high quality businesses when they?re trading at reasonable (or downright bargain) prices, and then hold them for the ultra-long term to let their value compound. Any dividends paid along the way are a nice addition, too.
It?s also a strategy that is employed by many of my fellow Fools, as well as by a number of investing legends including Warren Buffett.
While it?s usually a relatively straightforward task to identify a stock that could perform well over the next year or two (sometimes it can…
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When I buy shares, my ideal holding period is ‘forever’.
That is, I strive to buy high quality businesses when they’re trading at reasonable (or downright bargain) prices, and then hold them for the ultra-long term to let their value compound. Any dividends paid along the way are a nice addition, too.
It’s also a strategy that is employed by many of my fellow Fools, as well as by a number of investing legends including Warren Buffett.
While it’s usually a relatively straightforward task to identify a stock that could perform well over the next year or two (sometimes it can be as simple as identifying economic trends such as employment data or retail activity), it becomes much more difficult identifying one that will likely be much bigger 10, 50 or even 100 years from now.
So many things can happen over such a long time span that could impact an investment thesis.
To make things even more difficult, it’s rare that you find such a company when it’s trading at a decent price. Usually these sorts of stocks have already well and truly been recognised by the market and are trading at fair or above fair prices.
A ‘forever’ brand
But that’s not the case with Coca-Cola Amatil Ltd (ASX: CCL). Instead, Australia’s leading beverage manufacturer and distributor finds itself in an unenviable position where it seems very few investors are encouraged by what it has to offer.
What was once one of Australia’s most popular (and consistent) stocks has since become a topic of disappointment. Numerous profit warnings caused by factors such as a pricing war with Schweppes, pressure from Woolworths Limited (ASX: WOW) and lacklustre growth in Indonesia, have seen the share price knocked down more than 44% since March 2013.
In fact, the stock is now trading at just $8.67 – nearly its lowest price since early 2009.
And after the company’s new managing director, Alison Watkins, warned that she expected earnings for FY14 to be “materially below 2013”, it’s apparent why some shareholders are jumping ship to limit their losses.
But those investors selling now may be missing a lot more that Coca-Cola Amatil has to offer. Sure, the company is certainly facing some headwinds in the near term, and investors certainly shouldn’t expect an overnight fix.
However, well aware of the crisis facing the business, Watkins has implemented a strategic review in order to hone in on the profitability issues. While a thorough update regarding the review is expected at the end of this month, the company has already identified a number of areas where it can improve on its performance.
To begin with, up to $100 million of costs could be removed from the business annually, which would provide an enormous level of support to overall earnings. These savings could help to improve marketing and develop new products to drive the company forward for years to come.
The big selling point however, is the strength of the company’s brands. Sure, they’ve come under pressure in recent times with Schweppes’ products gaining market share, but Coca-Cola is one of the most recognisable brands in the world, and you can be sure that trend will continue well into the future.
While the stock remains volatile, I certainly wouldn’t recommend that speculative investors or traders buy the company’s shares. However, at their current price they are presenting as a fantastic long-term opportunity for investors willing to remain patient.
The BEST stock to buy in 2015
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Motley Fool contributor Ryan Newman owns shares in Coca-Cola Amatil Ltd.