They don't operate in the same industry, but there are several ways in which Nike (NYSE:NKE) and Coca-Cola (NYSE:KO) would land on an investor's radar as potential stock buys. They are among the biggest marketing giants on the planet, for one, and boast global businesses with extremely valuable brands. And both underperformed the Dow Jones Industrial Average in 2023, making them good candidates for investors who are seeking value.
But which is the better addition to your portfolio right now? Let's dive right in.
Growth goes to Coke
These aren't boom times for either the beverage industry or the footwear market, and that fact helps explain why Wall Street has left both stocks out of the latest bull market rally. Coke shares are flat in the past year and Nike is down 16% even as the S&P 500 has jumped 27%.
Coke's relative outperformance reflects its stronger growth profile. Organic sales were up a healthy 12% in 2023, management announced in mid-February. Compare that to Nike's most recent 1% decline and there's a clear growth winner today. Coke's momentum is likely to carry on into 2024, with organic sales on track to stay in solidly positive territory. Nike, on the other hand, has warned investors to expect even weaker sales trends over the next six months.
Margin profile
Nike is making aggressive moves aimed at boosting profitability, yet you'll still prefer Coke for its sparkling earnings outlook. The beverage giant showed off its pricing power this past year, boosting prices while keeping case volume rising in 2023. That's a great sign for the next few quarters of profits.
Nike, in contrast, endured declining earnings in the past six months as many of its retailing partners cut prices to keep inventory moving. Nike expects these tough industry conditions to continue at least through the rest of fiscal 2025, with sales trends likely weakening even further.
Watch for financial benefits from its new cost-cutting program, but don't expect an especially sharp rebound. "As we look ahead to a softer second-half revenue outlook, we remain focused on strong gross profit margin execution and disciplined cost management," Nike CFO Matthew Friend said in late-December earnings report.
Price and cash returns
As you might expect, Coke's excellent finances make it a more attractive stock when it comes to cash returns. You'll get a 3%-plus yield with the beverage giant's shares, or about twice Nike's yield. Coke also has a much longer track record of raising its payout (over 60 years compared to Nike's 22 years). That's a direct result of the company's dominant market position in the consumer staples industry. If you prefer stable sales and earnings growth, then Coke will be a better fit for you.
Coke seems like the cheaper stock at first glance, which might seem surprising given its better operating metrics. Shares are priced at 24 times earnings compared to Nike's price-to-earnings (P/E) ratio of 30. In this case, the price-to-sales ratio makes more sense as a valuation metric given all the volatility around currency exchange rate swings. Coke is trading at a premium there, both compared to Nike and to its rival PepsiCo.
Most investors will still prefer Coca-Cola stock even at its higher valuation. The company has attractive growth prospects in non-traditional beverage niches like energy drinks and sparkling waters. And its ample profits point to rising cash returns ahead. Meanwhile, Nike has been struggling for years to get to a place of sustainably stronger earnings. Investors should avoid the stock until there's clear progress on that point.
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Demitri Kalogeropoulos has positions in Nike. The Motley Fool has positions in and recommends Nike. The Motley Fool recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
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