Brewing Resilience: Why Coca-Cola & Philip Morris Are Top Bets for a Slowing Economy

As global growth slows and uncertainty looms, investors are turning to companies with proven resilience. Morgan Stanley’s recent analysis underscores two giants—Coca-Cola (KO) and Philip Morris International (PM)—as top picks in the consumer staples sector. Both companies exemplify structural resilience: they thrive through economic cycles, command global markets, and possess pricing power that few can match. Here’s why they’re must-haves in a defensive portfolio.

Structural Resilience: Why Staples Rule in a Slowing Economy

Consumer staples are recession hedges because they cater to essential, inelastic demand. People may cut back on discretionary spending, but they still drink beverages and buy tobacco products—especially premium, trusted brands.

Coca-Cola’s Global Reach & Pricing Power
Coca-Cola’s Q1 2025 results highlight its defensive strength: organic revenue rose 6% driven by price hikes and volume gains in high-growth markets like India and Brazil. Its beverages—Fairlife, Minute Maid, and its namesake soda—are staples in households worldwide. The company’s ability to raise prices while maintaining volume growth (up 2% in Q1) underscores its pricing power, a rarity in today’s inflationary environment.

Philip Morris’s Shift to Smoke-Free Dominance
Philip Morris is transforming itself into a smoke-free leader, with 42% of revenue now from IQOS and ZYN nicotine pouches. Q1 2025 revenue surged 10.2%, with smoke-free sales up 20% organically. Even in a slowing economy, consumers are migrating to premium, healthier alternatives—a trend Philip Morris is capitalizing on. Its smoke-free products now account for 33% of gross profit, a testament to margin expansion and long-term sustainability.

Dividend Sustainability: Steady Returns in Volatile Times

Both companies offer rock-solid dividends, critical for investors seeking income stability.

• Coca-Cola’s Dividend History: With a 60-year streak of annual dividend increases, Coca-Cola’s yield of 2.8% (vs. the S&P 500’s 1.4%) is a beacon of consistency. Even at current prices, its forward P/E of 22x is below its five-year average, offering upside.
• Philip Morris’s Margin Machine: Despite growth investments, Philip Morris’s adjusted EPS rose 17.3% in Q1, fueling a dividend yield of 5.3%—one of the highest among consumer staples. Its focus on high-margin smoke-free products ensures cash flow resilience.

Risks & Regulatory Pressures: Navigating the Challenges

No investment is risk-free. Here’s how these companies are mitigating headwinds:

Coca-Cola:
- Health Trends: Growing awareness of sugary drinks could pressure sales, but Coca-Cola is diversifying into healthier options (e.g., Fairlife, Honest Tea).
- Geopolitical Risks: Trade tensions are manageable, as CEO James Quincey noted in Q1.

Philip Morris:
- Regulatory Headwinds: The EU’s flavor ban on IQOS in 2025 poses a near-term challenge, but ZYN’s U.S. growth (53% shipments in Q1) offsets this.
- Currency Volatility: A stronger dollar reduced EPS by $0.07 in Q1, but long-term hedging strategies limit exposure.

Valuation: Compelling Entry Points Ahead

Both stocks trade at discounts to their growth trajectories:

• Coca-Cola: At $6.25 billion in cash and a P/E of 22x vs. its five-year average of 24x, it’s attractively priced. Morgan Stanley’s $78 price target implies 12% upside.
• Philip Morris: With smoke-free margins expanding (up 250 bps to 40.7% in Q1), its $182 price target (per analyst Lisa Lewandowski) offers 9% upside from current levels.

Conclusion: The Case for Immediate Action

In a slowing economy, Coca-Cola and Philip Morris are structural winners. They dominate global markets, possess pricing power, and deliver dividends that outperform broader indices.

• Coca-Cola’s 6% organic growth and 2.8% yield make it ideal for income-focused investors.
• Philip Morris’s 10%+ revenue growth and 5.3% yield position it as a growth-and-income hybrid.

Entry Points:
- Coca-Cola: Buy dips below $65, targeting $78 by year-end.
- Philip Morris: Accumulate below $160, aiming for $180+ by 2026.

With their defensive profiles and undervalued multiples, these stocks are not just recession hedges—they’re high-conviction buys for any portfolio.

Invest wisely. Act decisively.