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In a recent strategy note Goldman Sachs analysts discussed the most attractive stocks at this juncture in the economic cycle.  They maintain the stocks with strong revenue growth and high ROE are likely to outperform.  Within these strategy baskets they believe one stock in particular fits the mold.  An old Warren Buffett favorite, Coca-Cola is the stock that Goldman believes best meets this criteria:

“Coca-Cola (KO) fits many of the strategy criteria we seek in aninvestment at this point in the economic cycle. We recommend anoverweight position in the Consumer Staples sector. Within the sector, Coke ranks highly from a revenue growth and ROE perspective and is a constituent in both of our thematic baskets discussed above.

In addition, Coke shares are also a constituent in our sector-neutral high Sharpe Ratio basket that consists of the 50 stocks with the highestprospective risk-adjusted returns (Bloomberg ticker: <GSTHSHRP>). The basket has returned 6.5% YTD. Coke generates 55% of its revenue outsidethe US and 75% of profits. It was almost a constituent in our BRICs basket but a few Consumer Staples firms have slightly higher BRICs sales exposure.

Our Goldman Sachs Beverage analyst Judy Hong rates the stock a Buy and has a $76 target price reflecting a potential return of 17% from thecurrent share price of $65. KO is flat in 2011. KO trades at 16.8x and 15.0xour forward EPS estimates of $3.87 for 2011 and $4.32 for 2012, respectively.

However, growth managers are nearly 100 bp underweight Coke shares.The typical large-cap growth mutual fund has a 0.6% position in KO compared with the stock’s 1.5% weighting in the Russell 1000 Growth Index.”

Source: Goldman Sachs

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