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Coca-Cola could make a move into booze, according to a Wells Fargo analyst

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Coca-Cola shares are set for a breakout thanks to successes overseas and its mission to expand its beverage line-up, said Wells Fargo, which upgraded the stock to outperform.

But probably most interesting in analyst Bonnie Herzog’s Monday note was speculation that the 125-year-old purveyor of sugary beverages may make a move into alcoholic beverages. She expects management to make some hints of this at the company’s Investor Day on Thursday.

“We expect management will highlight a lot of this innovation,” Herzog wrote on Monday, as well as “expand on CEO Quincey’s recent commentary to: grow and incubate high-growth brands in the U.S. through its Venturing & Emerging Brands unit (VEB); build and nurture small brands internationally, similar to what it has achieved with success in the U.S. with VEB and through local partnerships; expand into other premium segments such as adult craft beverages.”

Wells Fargo raised its 12-month price target on the company to $51 from $45, representing 9 percent upside from Monday’s close.

A Coca-Cola spokesperson told CNBC that questions on beverage expansion will not be addressed until Investor Day.

The soft drink giant bought Fuze and Vitamin Water in 2007, Honest Tea in 2011 and Keurig Green Mountain in 2014. That same year, Coca-Cola took a 16.7 percent stake in Monster Beverage, a popular energy drink maker. But since then, Coke’s acquisition game-plan seems to have stalled.

In her list of key questions for management on the investor day, Herzog writes, “To what extent does KO intend to expand into adult craft beverages, and will that include alcoholic beverages (or just mixers)?”

Coca-Cola is the world’s largest non-alcoholic beverage maker with a market value of $199.6 billion. AB InBev is the world’s largest maker of alcoholic beverages with a market value of $197.2 billion. The maker of Budweiser just replaced its North America president in an effort to revive slumping beer sales.

Herzog also highlighted Coca-Cola’s stake in Monster as a potential area for excitement, noting that the press has been quick to jump on any signs of a potential deal.

“We continue to believe Coca-Cola’s best-in-class distribution and strong brand portfolio will allow it to retain its premium valuation and believe that investments in productivity and marketing today will pay off in years to come,” added Herzog. “We think Coca-Cola can support roughly 5 to 6 percent organic revenue growth over the next several years, ahead of current consensus estimates.”

During the company’s upcoming Investor Day, the analyst also expects the business to highlight diminished headwinds in Venezuela and Brazil, and cost savings in North America.

“With a new reinvigorated management team, and renewed focus on accelerating top-line growth while maintaining discipline around costs, we believe Coca-Cola’s next chapter of growth is around the corner.”

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Guess shares tank on lower-than-expected quarterly sales

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Tradebuddy.onlines of Guess Inc. GES, +0.96% fell 12% late Tuesday after the retailer reported third-quarter sales that missed Wall Street expectations. Guess said it lost $2.9 million, or 4 cents a share, versus earnings of $9.1 million, or 11 cents a share, in the year-ago period. Adjusted for one-time items, Guess earned $10.4 million, or 12 cents a share, compared with $9.6 million, or 11 cents a share a year ago. Sales rose 3.3% to $554 million, compared with $536 million a year ago. Analysts surveyed by FactSet had expected adjusted earnings of 12 cents a share on sales of $564 million. Retail revenue in the Americas fell 11%, offset by increases in Europe and Asia, the company said.

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This Little-Known Chinese Stock Is on Fire — The Motley Fool

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Chinese stocks have done reasonably well in 2017, with the Shanghai Composite Index up about 10%. Yet that’s lower than the 15% return of the S&P 500, and when compared with emerging markets overall and the MSCI EM Index’s 25%-plus return, China’s stock market has underperformed.

However, it’s been a strong year for stocks of Chinese companies listed in the United States through American depository shares (ADS). High-profile Chinese companies such as Alibaba (NYSE:BABA) and JD.com (NASDAQ:JD) have provided investors year-to-date returns of 106% and 52% as of this writing. Even better, shares of social-media live-streaming platform provider YY (NASDAQ:YY) have blown both out of the water. Below, you’ll find what you need to know about this company.

JD data by YCharts

YY has a long runway for growth

Like Alibaba and JD.com, YY benefits from demographic tailwinds. About 731 million Chinese citizens — more than half of the total population — had Internet access as of year-end 2016. That figure has rapidly increased, growing by approximately 19% per year since 2005. Not only are more Chinese citizens gaining Internet access, but the ranks of the middle class with disposable income are swelling. The Brookings Institute estimates middle-class consumption in the Middle Kingdom will grow 8.5% per year until 2030.

As the leading live-streaming mobile and PC provider, YY benefits from both increased Internet penetration rates and disposable income from a rising middle class. The company currently has 73 million mobile live streaming monthly active users, a 37% year-over-year increase. Look for user growth to continue from its host of online-dating, music, gaming, and sports sites.

YY had a strong quarter

YY’s run appears to be mostly supported by the financials. In the recently reported third quarter, the company increased net revenue 48% from last year’s quarter and net income per ADS by 52%, and the pace of that growth has been quite a bit higher than those who follow the stock closely had anticipated. The company expects strong top-line growth to continue, issuing projections for sales to grow in the fourth quarter by between 36% and 41%. 

Picture of Shanghai at night.

Image source: Getty Images

YY is relatively cheap

Unlike its Chinese peers Alibaba and JD.com, YY is cheaply valued, with shares currently trading at a forward earnings multiple of about 15 times what investors expect YY to earn in 2018. That’s attractive in comparison to the S&P 500’s corresponding forward multiple of about 20. Meanwhile, Alibaba and JD.com trade at much more expensive valuations of 36 and 42 times forward earnings estimates, respectively.

It’s not often you find a company growing its top and bottom lines approximately 50% while trading at multiples lower than the overall market. If you’re an investor in Alibaba and JD.com and are looking for more ways to profit from the demographic shift in China, put YY on your due-diligence list before Wall Street catches wind of the name.

 


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