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Is it time for investors to pour themselves a Coke?

It may seem like a strange question to ask in the middle of a brutal recession, particularly given the dismal track record of Coca-Cola Co.'s shares over the past decade.

Consider this: If you had bought Coke KO-N at its 1998 peak and reinvested all your dividends, you'd still be down 30 per cent. Over the same period, rival PepsiCo Inc. has gained about 62 per cent.

But it's precisely the stock's lousy performance that makes Coke look like a bargain to some analysts, who point out that the business has kept on growing even as the stock has gone flat.

"The company hasn't been standing still for the past 11 years," said Murray Leith, director of research with Odlum Brown Ltd. in Vancouver.

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Indeed, Coke's sales per share have risen 81 per cent in that time, earnings have jumped 118 per cent and the dividend has soared 173 per cent. Coke's price-to-earnings multiple (a company's share value divided by earnings over the past 12 months) has shrunk to about 16 from more than 60 in the late 1990s, a huge contraction.

To be sure, Coke's compressed P/E multiple reflects slowing growth prospects for the world's largest soft-drink maker, particularly in the saturated North American market. But it's also a sign that investors are "apathetic," Mr. Leith said.

The situation today reminds him of 1981, when Coke and other blue-chip stocks were coming off a decade of lousy returns, only to soar in the bull market of the 1980s and '90s. Coke's P/E had sunk to as low as 8 back then, so one could argue that the stock still has room to fall, but Mr. Leith said a higher multiple is justified now because interest rates and inflation are much lower.

Dozens of other U.S. blue chips have shown a similar boom-bust cycle, as investors bid stocks to excessive valuations, only to watch them plunge during the subsequent decade as valuations returned to Earth, setting them up for another rally.

"In our opinion, the same pattern is unfolding again," Mr. Leith said in a note to clients. "After a decade of poor performance, we believe large capitalization American stocks are poised to do very well in the decade ahead."

“ Our hope is that investors will not miss the opportunity to exploit the situation, as it could be another 30 years before a similar opportunity arises. ”— Murray Leith, director of research with Odlum Brown Ltd.

Mr. Leith isn't the only one who thinks Coke could regain its fizz. According to Bloomberg, 12 of the 16 analysts who follow the company have "buy" ratings, while the other four have "holds."

Certainly, Coke has its challenges, but there are opportunities as well.

Even as it faces a flat market for carbonated drinks, sales of non-carbonated beverages are growing as consumers switch to healthier alternatives such as bottled water, juices and iced tea. What's more, strong international expansion in countries such as China and India is countering sluggish performance in North America, which now accounts for just 18 per cent of Coke's profit.

Coke's financial position is the envy of other companies. Over the next five years, it is expected to generate between $4-billion (U.S.) and $5-billion of free cash flow annually, which "should enable Coke to make necessary investments, while still growing the dividend, buying back shares and being opportunistic on acquisitions," Edward Jones analyst Jack Russo said in a note this week.

In February, the company raised its dividend by 8 per cent - the 47th consecutive increase. The shares now yield 3.4 per cent, about twice as high as the yield was five years ago.

The stock isn't without risks. Because Coke operates in so many foreign markets, its results are vulnerable to currency swings. Given the strength of the U.S. dollar, the company's bottom line is expected to take a hit when second-quarter results are released on July 21.

"Profit growth is being wiped away by forex translation to a greater degree than expected, and impact for [the second quarter] is not expected to improve much," Deutsche Bank analyst Marc Greenberg wrote after first-quarter results were released in April. He rates Coke a "hold."

Canadian investors who buy Coke shares expose themselves to another layer of currency risk, namely the exchange rate between U.S. and Canadian dollars. For his part, Mr. Leith thinks the loonie's strength over the past few years makes it a good time to go cross-border shopping for Coke and other U.S. stocks that have fallen out of favour.

"Our hope is that investors will not miss the opportunity to exploit the situation, as it could be another 30 years before a similar opportunity arises," he said.