Want More Fizz Than Coca-Cola? Look At These Two Stocks
If you are a Coca-Cola (NYSE:KO) investor and took advantage of the stock’s reasonably strong performance in recent weeks following its better-than-expected Q2 earnings report, it may be time to look elsewhere. As of this moment, we find HCA Healthcare (NYSE:HCA), an operator of healthcare facilities, and aerospace and defense major Lockheed Martin (NYSE:LMT) to be more attractive than Coke.
Why? Simply because the valuation and growth numbers tell us so. Lockheed Martin and HCA Healthcare stocks have both seen higher growth in revenue and operating profits than Coca-Cola in the last twelve months, as well as the most recent quarter. Not only that, they’re both cheaper than Coca-Cola.
In fact, the strategy of thoughtfully shifting allocation to more attractive stocks is part of our market outperforming Trefis High Quality Portfolio (HQ) – which beat the S&P 500 in 2023 handily despite being meaningfully underweight the magnificent 7. Full HQ performance story here.
Better Buys Than KO – LMT & HCA Stocks?
Specifically, to illustrate the opportunity for Lockheed Martin, you pay $15.60 per dollar of earnings-before-interest-and taxes (EBIT) for LMT stock versus $24.52 for KO, and get higher annual growth (5.5% vs 5.3%), higher quarterly growth (8.6% vs 3.3%), and a better margin trend (-0.8% vs -1.8%).
Overall, you get higher revenue, and operating profit growth from Lockheed Martin and HCA Healthcare, and pay less than KO stock. See our complete analysis on Better Bets Than KO Stock for a detailed breakdown of the key valuation metrics, growth rates, and margin comparisons of the three stocks.
So What’s The Catch?
Now, could Coca-Cola buck the trend? Could it grow its revenues and profits faster than Lockheed Martin or HCA Healthcare in the coming quarters? Of course that’s possible. Coke has seen case volumes grow in international markets despite mixed economic conditions, while its average price of products sold in North America increased 11%, led in part by price increases and a higher mix of more premium products such as Fairlife milk.
Price increases are notable, given that U.S. consumer spending has been tepid, amid high levels of inflation in recent years. This has actually helped Coke’s operating margins expand by about 120 basis points year over year in Q2 to 21.3%. If the company can continue with its deft cost management and premiumization strategy, the stock could see the upside.
The point? Data shows both Lockheed Martin and HCA Healthcare outperformed Coca-Cola recently and over the last year. They might repeat this. Related Ideas: Better Buys and Outperformers
Pay Less Per Dollar Of Profit (EBIT) Than Coca-Cola, To Get More Revenue And Profit Growth?
While HCA has seen the strongest revenue growth of the three both in the last twelve months and the last quarter, KO has seen the slowest growth over the period. Moreover, KO’s margins have also seen the most contraction over the last twelve months. However, despite this, KO stock trades at a higher price-to-operating income ratio of 24.5x, compared to 10x for HCA.
What About Relative Market Returns?
LMT stock has shown a stronger market performance, with returns of 18.6% over the past 3 months, 28.4% over the past 6 months, and 22.3% over the past 12 months. In comparison, KO’s returns for the same periods were slightly weaker at 12.9%, 15.5%, and 19.5%, respectively.
How Did These Metrics Look 1 Year Ago – Could KO’s Combination Of Higher Valuation & Lower Growth Persist?
KO still had a higher valuation of $20.88 vs $13.07 for LMT but higher annual growth (6.8% vs 5.0%), lower quarterly growth (5.7% vs 8.1%), and more favorable margin change (0.1% vs -0.7%). The situation looks quite different now which means that market reward could switch in favor of LMT and HCA.
Investment Thesis For HCA, LMT
HCA Healthcare is one of the largest listed healthcare providers in the U.S., with close to 200 hospitals across 20 states, a large mix of which are located in cities where the population is growing or aging. The company’s significant size gives it stronger bargaining power with government programs as well as insurance companies, with its margins also coming in ahead of peers. Over Q2 2024, adjusted operating margins rose by 100 basis points year-over-year to 20.3%. The company’s expansion, rising margins, and stock buyback program could drive steady earnings growth for investors. See our complete analysis of HCA Healthcare Valuation
LMT stock has been benefiting from a robust demand environment amid ongoing geopolitical tensions with the ongoing wars in Gaza and Ukraine. The company is likely to see steady growth across its segments. The Aeronautics segment has been benefiting from increased production of F-16 and F-35 jets. Earlier this year, Lockheed Martin won a multi-year contract worth $17 billion to develop the next-generation interceptors to protect the U.S. from intercontinental ballistic missiles, and this will drive its Missiles and Fire Control segment sales growth going forward. Lockheed should also benefit from improving supply chain conditions, which could boost production and revenues. Separately, the company’s capital return program which includes a 2% plus dividend yield as well as share buybacks should also support the stock. See our complete analysis on Lockheed Martin’s Valuation
Here’s more on Trefis’ market-beating portfolios, including HQ with downside protection.
| Returns | Aug 2024 MTD [1] |
2024 YTD [1] |
2017-24 Total [2] |
| KO Return | 4% | 20% | 113% |
| S&P 500 Return | 2% | 18% | 151% |
| Trefis Reinforced Value Portfolio | 5% | 13% | 737% |
[1] Returns as of 8/22/2024
[2] Cumulative total returns since the end of 2016
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