Bringing together Domino's Pizza (DPZ -0.69%) and Coca-Cola (KO -0.19%) is my idea of a party. These consumer goods giants are not only household favorites but fantastic stocks with long histories of rewarding shareholders.
Coincidentally, at the time of this writing, shares of Domino's Pizza and Coca-Cola were both down 14% from their respective 52-week highs. That could make this an opportune time to pick up shares of these high-quality industry leaders on sale. But which would be the better buy now?
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The case for Coca-Cola
The Coca-Cola Company has enhanced its business by diversifying beyond its traditional focus on soft drinks. Today, with consumers increasingly choosing healthier beverage options, it markets more than 200 brands across categories including sports drinks, flavored water, juices, and dairy products.
Over the past decade, several acquisitions enabled Coca-Cola to consolidate its leading share of the non-alcoholic ready-to-drink beverage industry. Developing and emerging markets continue to be significant growth drivers.
This year, Coca-Cola moved past supply chain disruptions and inflationary pressures that dragged on its results in 2022 and 2023. In the company's fiscal 2024 third quarter, which ended Sept. 27, organic revenue increased by 9% year over year, propelled by higher pricing and the ongoing premiumization of its brand portfolio.
The company has been refranchising more of its international bottling operations recently, effectively transferring more control to its independent partners. But that longer-term strategy allowed Coca-Cola to focus on marketing while generating high-margin cash flow from fees and royalties. The impact was evident on its bottom line as comparable currency-neutral earnings per share climbed by 13% from the prior-year quarter, with the financial performance reaffirming the company's blue chip status.
Investors confident about the company's ability to continue generating profitable growth should be well served by buying and holding shares of Coca-Cola for the long run.
The case for Domino's Pizza
With more than 21,000 stores in over 90 countries, Domino's Pizza is one of the largest restaurant chains in the world. It also shares a connection with Coca-Cola, as it features the company's beverages through a long-term commercial partnership. Both companies have business models centered on franchise agreements that facilitated their global expansion.
Billionaire Warren Buffett is a longtime investor in Coca-Cola, and his conglomerate, Berkshire Hathaway, recently added Domino's Pizza to its equity portfolio. According to a recent Securities and Exchange Commission filing, Berkshire now holds a 3.7% stake in the pizza chain compared to a 9.3% interest in Coca-Cola. While the reasoning behind the Domino's purchase has not been publicly disclosed, it does give investors another reason to feel confident about the pizza company's long-term outlook.
Domino's is in the midst of a financial turnaround after a more challenging 2023. In its fiscal third quarter, which ended Sept. 8, U.S. store sales climbed by 3% year over year, in contrast to their 0.6% decline in fiscal Q3 2023. Improving margins helped lift its earnings per share by 16% through the first nine months of the year.
Ultimately, the best reason to buy Domino's Pizza stock is its growth potential. Specifically, the company is still underpenetrated in international markets. Management is targeting annual global retail sales growth of 7% over the long run, and sees potential for income from operations to climb at an even faster rate. Domino's brand recognition and reputation of quality make it worthy of consideration as an investment.
A tough decision
I'm bullish on Coca-Cola and Domino's Pizza, and believe there's a good chance that both their share prices will be higher by this time next year, benefiting from a resilient macroeconomic environment.
If forced to pick one as the better stock today, though, I'd say Coca-Cola may have the edge based on its more compelling value, including a dividend that yields 3% at the current share price, compared to Domino's yield of 1.3%. Moreover, Coca-Cola is a Dividend King with 62 consecutive years of payout increases, and it's well positioned to keep its streak going.
Shares of Coca-Cola are trading at a forward price-to-earnings (P/E) ratio of 22, based on Wall Street's consensus estimate for 2024. That compares favorably to Domino's forward P/E of 27. My interpretation is that Coca-Cola may have more upside. Either way, both stocks could fit comfortably into a diversified portfolio for investors with long-term investment horizons.
