Börse Express – Coca-Cola, General Mills & Co.: Are the shares all wrongly valued?

From stocks like Cola (WKN: 850663) or General Mills (WKN: 853862) is it better to stay away now? Sure. The time for good deals is over. Dividend yields of 3% are a rarity for pricing defensive dividend stocks. But is that a reason to stay away from these exciting stocks now?

Of course, it depends on which of these stocks you are looking at. After all, there are various differences between Coca-Cola and General Mills: Quality, growth, pricing power, name and dividends are different. But it could be that all these defensive dividend stocks are being misjudged by the market right now. Inflation is just a treacherous beast. But with the time factor, these stocks also change.

Coca-Cola, General Mills & Co.: Misjudged?

Maybe you think like me sometimes. I look at Coca-Cola or General Mills and see more moderate growth. Then I think to myself: Hmm, with a dividend yield of 2.8% and a rather expensive price/earnings ratio, even a little pricing power will change the valuation relatively little in the coming year. Moderate growth is just not enough.

If you think like that, you should get used to following other thought patterns. As foolish corporate investors, we’re not worried about whether a pricing power stock can return to a price-to-earnings ratio of 20 within the next three years. Or 3% or even 3.5% dividend. Our focus should rather be: What is possible in 10 years, what in 20? And if we have time: what maybe even in 40 years?

Ultimately, looking at General Mills and Coca-Cola, there could be another two or three years of higher inflation. This means that they may be able to use their pricing power for a longer period of time. But even if not: In 20 or 30 years even moderate inflation of 2% would be a problem for one’s own assets. With such a defensive business model, a strong, timeless brand, and solid products with pricing power, a balance can happen over such a period that allows for a solid return.

So my concern with Coca-Cola and General Mills is if we buy these top stocks, ideally to hold them forever, what do we care about valuation today or 3-5 years from now? A period of decades of price fixing and inflation protection can certainly result in low single-digit price-to-earnings and solid dividend growth. Isn’t that what it’s all about?

Often misjudged

In my opinion, stocks like Coca-Cola or General Mills are therefore misvalued. It is often about medium-term perspectives. Or even long-term ones that only focus on five years. As investors, we should see the cost of security and pricing. And we may be more inclined to ask ourselves where the stocks and business models will be in ten years or even much later.

Looking at it, I think even today these top stocks are not too expensive. But not all investors have the luxury of ignoring the present. Or patience.

The article Coca-Cola, General Mills & Co.: Are the stocks all mispriced? first appeared on The Motley Fool Germany.

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Vincent owns shares in Coca-Cola and General Mills. The Motley Fool does not own any of the stocks listed.

Motley Fool Germany 2022

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