Coca-Cola's Steadiness Under Scrutiny as Valuation Reaches New Heights

The Coca-Cola Company has a history of holding up well when the S&P 500 index falls. Since 1980, there have been eight calendar years where the S&P 500 logged a negative total return. In seven of these years, Coca-Cola's (NYSE:KO) total return beat the index.

However, in three of those years, Coca-Cola's shareholders still lost money. The company's worst run came after investors paid a high price for the stock in 1998, when it traded at around 47 times earnings and its earnings per share had fallen 13% that year.

Averaged over all eight years, Coca-Cola's total return was around 1% a year, while the index averaged a loss of about 14%. The company's business looks healthy today, with management raising its full-year outlook for adjusted earnings-per-share growth to 9% to 10%, up from 8% to 9%.

Despite Coca-Cola's steadiness, shares trade at around 26 times earnings after climbing about 23% so far this year. The stock is not cheap going into whatever the next bad year may be. However, its valuation today is far from that extreme of 1998.