The Coca-Cola Company (KO) has been trading in the range of $39.77 – $42.96 over the past 30 days. Overall, it is seeing very strong technical and fundamental characteristics that make it a buying opportunity.
THE CHART
Looking on the candlestick chart, KO has formed a doji pattern. It has been showing support around $41.20 and resistance in the $42.70 range. The stock is trading above the 50-day moving average and above the 200-day moving average and the 14-period relative strength index (RSI) shows neutral reading at 48.88.
THE FUNDAMENTALS
The company’s PE stands at 22.06, below the industry average of 29.93 and above the S&P 500 average of 16.70. The stock is currently trading 6% below its intrinsic value of $44.97, which suggests that the stock is undervalued at these levels. KO’s current Price/Sales of 3.92 is above the average of its industry of 2.58. KO pays out an annual dividend of $1.12, or 2.50%.
OPTIONS STRATEGY RECOMMENDATION
Investors should consider the following debit call spread: Buy June 2013 42.00 Calls at $1.00 and sell the June 2013 44 calls at $0.20. The net debit to start is $0.80, and we recommend holding until spread price reaches $1.90. This strategy will allow you to collect time premium for out of the money short call and decrease the overall cost of the initial investment.
