Twitter and Coke -- Who's Sexy Now?

 | Feb 06, 2014 | 3:00 PM EST  | Comments
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Stock quotes in this article:

twtr

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ko

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gmcr

Two seemingly unrelated stories about two seemingly unrelated stocks are intriguing me this morning. Comparing two companies as far apart as Twitter (TWTR) and Coca-Cola (KO) would usually be a pointless exercise; they are in completely different stages of development as well as completely different sectors. These two separate stories, however, relate to one thing that all companies strive for -- growth -- and to the market, growth is sexy.

In case you missed it, Twitter released earnings after the bell Thursday. To "Twitterize" the results, "$TWTR Finally a #profit Hooray! Unfortunately #2Centsashare looks like that's it for now."

Okay, so it wasn't quite that bad, but revealing that future growth has been overestimated along with your first-ever profitable quarter is a bit of a downer. Traders certainly think so. TWTR was trading about 20% lower than Wednesday's close this afternoon.

Coke, on the other hand, announced this morning that it has acquired a 10% stake in Green Mountain Coffee Roasters (GMCR) as part of a 10-year partnership agreement that involves KO supplying GMCR for its forthcoming cold-drink dispenser. As a result, GMCR is trading around 30% higher this morning.

Both of these stories have been reported and dissected elsewhere, so I won't go into detail about them individually. I had my say on TWTR in December, when I predicted that the stock was vulnerable given that the valuation was based on increasingly unrealistic growth expectations, so this reaction doesn't come as a major surprise. I haven't yet voiced an opinion on KO, but while I was right about TWTR, I was just as wrong about KO. Coca-Cola, it seemed, was a company whose best days were behind it. Once a company achieves a massive market share, global coverage and iconic status for a brand, there doesn't seem much room left for growth. In short, KO was too boring to write about. It seems, however, that the old dog is learning a few new tricks.

All well and good, you say, but what does this mean for me as an investor? The good news for GMCR now looks fully priced in. There could be upside as the product is launched, but not a lot. And there is the potential for problems and delays, so buying GMCR is anything but a one-way bet. Twitter could be approaching the area where it represents value to those with a taste for risk, but it isn't there yet. Remember, the current price is still roughly double what the world's best merchant bankers concluded was a fair valuation for the company (its IPO price of $26) just a few months ago. If there is value to be had here, it would seem to be in boring old KO.

As the Twitter story shows, when it comes to the stock market, actual growth is great, but it is the tantalizing prospect of it that traders find sexy. Young, vibrant stocks like TWTR have tons of sex appeal; old, somewhat timeworn ones like KO, not so much. This partnership with Green Mountain will, in the grand scheme of things, have a limited effect on Coke's bottom line. Such is the problem that huge multinationals face: any improvement in revenue has the feel of a drop in the ocean when third-quarter revenue was more than $12 billion.

What I believe will change, however, and it's why I believe KO is a buy following this agreement, is the market's attitude. Traders react to short-term drivers and news but, over time, large investors look for growth with a limited downside. Coca-Cola's partnership with Green Mountain is evidence that it has not stopped looking for growth opportunities and is not afraid to try new things. That, even in a company more than a century old, is kind of sexy.

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