Coca-Cola Stock: Buy, Sell, or Hold?

Coca-Cola 's (NYSE: KO) stock has rallied about 20% over the past 12 months and currently hovers near its all-time high. Investors embraced the beverage giant's stock as it flourished in an inflationary environment, while expectations for interest rate cuts made its dividends look more appealing.

So should investors buy, sell, or keep holding Coca-Cola's stock right now?

The reasons for buying or holding Coca-Cola stock

Coca-Cola might initially seem like a wobbly investment because soda consumption rates are declining across many developed countries. However, the company has consistently expanded its portfolio with more brands of fruit juices, teas, bottled water, sports drinks, energy drinks, coffee, and even alcoholic beverages to counter that secular decline. It's also refreshed its flagship sodas with new flavors, healthier versions, and smaller serving sizes to attract younger consumers.

Image source: Coca-Cola.

Back in 2020, Coca-Cola's organic sales fell 9% as restaurants and other businesses temporarily shut down their dine-in locations. The decline of the foodservice sector offset its stronger retail sales at supermarkets and other retailers. However, the company's organic sales grew 16% in both 2021 and 2022 as those headwinds dissipated. That figure rose another 13% in 2023 as Coca-Cola hiked prices to counter inflation, and it expects 9% to 10% growth this year.

Those higher prices, along with layoffs and other cost-cutting measures, lifted Coca-Cola's comparable operating margins from 28.7% (in both 2021 and 2022) to 29.1% in 2023. The company's comparable EPS increased 19% in 2021, 7% in 2022, and 8% in 2023. It expects 5%-6% growth this year, even facing tough currency headwinds from a strong dollar.

Those rock-steady growth rates seem to make Coca-Cola a great stock to buy, hold, and forget. It also pays an attractive forward dividend yield of 2.7%, and it's a Dividend King which has raised its payout for 62 consecutive years. That's probably why Warren Buffett's Berkshire Hathaway has patiently held onto its Coca-Cola shares over the past 36 years and still owns a 9.1% stake in the company.

The reasons for selling or avoiding Coca-Cola

Coca-Cola might seem like a no-brainer buy , but it usually underperforms the market because it's a defensive stock which flourishes during bear markets but loses its luster during bull markets. Over the past 30 years, Coca-Cola's stock advanced 527% while the S&P 500 rallied 1,090%. Over the past 20 years, Coca-Cola's stock rose 224% but the S&P 500 climbed 410%. Even including reinvested dividends, Coca-Cola's total return still lagged the S&P 500's total return during both periods.

So if you're simply looking for a good long-term investment, it might make more sense to simply buy an index fund or exchange-traded fund (ETF ) which tracks the S&P 500 instead of Coca-Cola. It might also be smarter to invest in Berkshire Hathaway, which has outperformed both Coca-Cola and the S&P 500 by a wide margin over the past 30 years.

The other reason to avoid Coca-Cola's stock is its valuation. At $72, it trades at 25 times forward earnings, which is a pretty high multiple for a company growing its comparable earnings at a mid-single digit rate. PepsiCo , which is struggling with the slower growth of its packaged foods segment, trades at 21 times forward earnings. Keurig Dr. Pepper , which is growing its profits at a slighter faster rate, has an even lower forward multiple of 19.

Therefore, Coca-Cola's valuations might be inflated by its brand recognition and its reputation as a safe haven stock in a choppy market. However, its insiders sold more than twice as many shares as they bought over the past 12 months. They also haven't bought a single share over the past three months as its stock hit its record highs.

So is it the right time to buy, sell, or hold Coca-Cola?

If you already own Coca-Cola as part of a diversified portfolio, it doesn't make much sense to sell the shares because the company is still built to last for generations as it pumps out steady dividends. But if you're looking for a new income stock to own right now, there are plenty of cheaper blue chip stocks paying higher dividends.

So for now, I think Coca-Cola is a stock to patiently hold -- but it's not one which should be aggressively bought or sold.

Leo Sun has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy .