By Rick Aristotle Munarriz (TMF Edible)

( January 26, 2000 ) -- I'm torn. Do I open a can of Diet Coke or Barq's Root Beer to accompany me in my closing thoughts. Oh, yes, I consume Coke products. But I'm not going to drink any more this year than I did last year, maybe less. Sorry, Daft, I can't help your ambitious growth projections. And Paul, I'm afraid I have to disagree on some of your well-presented arguments.

"I don't think Coke's position in its industry is going to change any time soon."

Probably not, Paul. It might lose a step or two as the competition takes advantage of Coke's untimely price hike. Still, even I don't think that Coke will give up the pole position in the industry any time soon. But is the industry itself secure? Many adults seem to be substituting coffee for cola as a caffeine source. Creative juice packaging (I mean, we didn't have those cool-shaped plastic squeeze bottles when we were young, chum) might draw the younger set. Anything from another batch of tainted soda to a worldwide plea for caffeine regulation to a trend to the simplicity of tap water can hit this susceptible industry right in the gut.

"Coke is an awesome generator of cash flow."

That's true, Paul. Though, over the years, its incremental market cap has outpaced the cash that it generated. Excess is not pretty. That is why, despite all these dividend hikes, the company yields less than 1% right now. And, speaking of 1%, that is how many less shares outstanding there are today than there were three years ago. Even a share buyback won't make much of a dent when your price is this inflated.

"While comparing growth rates to P/E ratios may give some valuation insight for small and mid-sized companies, it can really be thrown out the window with large blue chips like Coke."

I disagree completely. A small company has enough elbow room to eventually accelerate its earnings growth rate. How is Coke going to do that? Already, 70% of sales -- and 80% of profits -- were being generated outside of the United States. Give me a small company with the potential to climb over a large company any day.

"Coke may be trading at valuations that may appear to be high upon first glance, but the quality of the business is outstanding."

Was that you, Paul? Or someone touting the stock when it was part of the Nifty Fifty back in 1972? We all know what happened after that, don't we? That's right, Warren Buffett was scooping it up for two times sales 16 years later.

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