Coca-Cola FEMSA could be a good defensive buy for investors looking to hedge upcoming election volatility, according to Goldman Sachs. The bank upgraded shares of the Mexico-based coke bottler to a buy rating from neutral. The firm also set a new 12-month target price of $113.70, up from $108.30. This updated forecast is about 35% higher than the $84.24 level where the shares closed Friday afternoon. U.S.-traded shares of Coke FEMSA have lost 9% this year, and the stock is now priced at a reasonable valuation, according to analyst Thiago Bortoluci. He pointed out that the stock is currently trading broadly in line with its historical average against an attractive earnings setup in the next 12 months. Bortoluci attributed this positive earnings setup to inelastic demand for soft drinks in Mexico — that is, a situation pricing typically has no direct impact on consumption. “Solid industry fundamentals such as high per capita consumption, Coke’s undisputed preference and a growing middle-class in the region offer good visibility on Coke FEMSA’s underlying growth algorithm, where volume growth has been positive at low-single digits, pricing has typically outpaced inflation, and operating leverage has provided some room for [selling, general, and administrative expenses] dilution,” the analyst wrote. So-called SG & A expenses refer to nonproduction costs that a company incurs, including marketing and advertising. Despite the Mexican soft drink market being well established, Bortoluci still sees demand growing in the country, supported by constant soft drink innovation and conducive weather conditions. Significant growth could also come from more countries in Central and South America. Specifically, Bortoluci pointed to Brazil as offering more opportunities per capita. In response, Coke FEMSA has already adopted strategies such as strengthening its point-of-sale presence and expanding its investments, with 25 new lines expected to be launched across Coke FEMSA’s entire network until 2025, the analyst wrote. Meanwhile, costs should moderate in the low single digits in Mexico for the latter half of 2024, while prices have already been set to increase in the mid-single-digit range. “Resilient volumes (with upside from Brazil and Guatemala), strong prices and mix, and moderating costs could support some margin expansion in 2H24E, and our updated forecasts imply a 3% average potential upside to Bloomberg consensus EPS for 2024-25E,” Bortoluci said. With that in mind, the analyst now favors Coke FEMSA as a defensive stock to hedge against the Mexican presidential transition and November’s United States presidential election. Claudia Sheinbaum, who won Mexico’s presidential election in June, will begin a six-year term on Oct. 1. “We believe Mexico could remain volatile over the next six months as the country transitions into a new administration while the US elects a new president,” Bortoluci said. “In this environment, we favor stocks exposed to less discretionary industries such as Arca and Coke FEMSA.”