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Beverage Stocks for a Refreshing 2020

Thursday, February 13, 2020 | Matthew Sweeney
Beverage Stocks for a Refreshing 2020

Beverage stocks are issued by companies in the business of making and distributing drinks, whether those drinks are soft drinks, juices, or alcoholic beverages. As securities that fall into the food and beverage category, the products produced by such companies can be considered consumer staples.

Top Beverage Companies

These are the top stocks to watch on Wall Street in terms of beverage stocks. Many of these beverage companies have been around for hundreds of years. While others are more recent additions, they have quickly entrenched themselves as global leaders in the food and beverage business.

Beverage Industry

People have long consumed both alcoholic beverage choices like beer and wine, not to mention nonalcoholic beverages. One could argue that the beverage industry started centuries ago, with the first vineyards and breweries distributing their beverage products, long before there were food and beverage companies and food and beverage stocks.

But there is no doubt that the food and beverage industry as we know it today could not have taken off without the Industrial Revolution and its subsequent decades of refinement around the factory and assembly line process. When Michael Joseph Owens invented a bottling machine that could produce 240 glass bottles a minute, it became possible for a business to bottle and brand drinks like sparkling water, juice, and other flavored beverage products at a mass scale.

Combined with recent inventions like the automobile and refrigeration, this helped companies selling carbonated soft drinks, like Coca-Cola, Pepsi, and Dr. Pepper rapidly spread over the country and beyond. Consumers were quick to take a liking to these bottled beverages, yielding a great dividend for investors and making them great stocks to buy.

Around the same time, recently established breweries in Europe began to capitalize on centuries of tradition as they integrated generational brewing recipes with these new technologies of distribution, like mass bottling, forming some of the alcoholic beverage companies that are globally recognizable.

Today the market is mostly dominated by big names PepsiCo, Coca-Cola, and Constellation Brands. However, the recent growth of cannabis companies creating marijuana beverage choices is providing investors with some exciting options for dividend yield among the proverbial dollar stocks. These so-called pot stocks (the marijuana stocks focused on consumer-facing food and beverage products) are an exciting opportunity in the beverage industry.

For more conservative investors, there is more excitement to the beverage industry than cannabis stocks. Traditional names among non-alcoholic drinks like those bottled by PepsiCo and Coca-Cola are also in constant phases of steady growth as they increase their global operations and jockey for a better position in the race against each other. Of course, there are plenty of names in the alcoholic beverages sector, which tends to see a steady stream of cash flow from loyal customers.

In recent decades, consumers have developed a close connection to coffeehouse culture, most noticeably through Starbucks, which has become one of the most ever-present brands around the world.

Beverage Stocks to Buy for a Refreshingly Good Return

Coca-Cola, short for the Coca-Cola Company (NYSE: KO) is a name synonymous with American foodways and culture. Drawing in over $31 billion in revenue in 2018, the Atlanta-based beverage company operates along a franchise model, selling its syrups to localized bottlers and distributors who each cover a specific territory. The story of Coca-Cola began a few decades after the Civil War when pharmacist John Stith Pemberton invented a drink to help ease the addiction of veterans addicted to morphine. The original stimulating drink of coca leaves and kola nuts has changed its formula somewhat over the years, but it is still regarded as one of the most refreshing and invigorating soft drink choices worldwide—part of which is due to Coca-Cola’s marketing success. Minute Maid, Odwalla, Honest Tea, and Barq’s Root Beer are all subsidiaries of Coke.

PepsiCo, Incorporated (NASDAQ: PEP) is Coca-Cola’s biggest rival in terms of market share for soft drinks, but it surpasses Coca-Cola in other areas such as revenue: Pepsi’s 2018 revenue was double that of Coke at almost $65 billion. In fact, PepsiCo is the second-largest food and beverage business in the world, just behind Nestle. In the 1960s, Pepsi moved into snack food territory with its acquisition of Frito-Lay. Today, Tropicana, Quaker Oats, Aunt Jemima, and Gatorade are all subsidiaries of Pepsi. Pepsi also moved into the restaurant business as well, though its assets in this area were eventually spun off into Tricon Global Restaurants. Pizza Hut, Taco Bell, and KFC were all among fast-food chains previously owned by Pepsi, as were sit-down restaurants like California Pizza Kitchen and Chevys Fresh Mex. Incidentally, Pepsi had also acquired Wilson Sporting Goods and North American Van Lines, but those companies were also spun off as Pepsi prepared itself to acquire more snack food and beverage companies.

Starbucks (NASDAQ: SBUX) is an American coffeehouse chain and coffee distributor with over 30,000 locations worldwide. Starbucks began in 1970s Seattle. Named after the first mate from Moby Dick and founded by three friends inspired by roastmaster Alfred Peet (founder of Peet’s Coffee), Starbucks initially only sold whole roasted beans. In 1984 the three founders sold it to Howard Shultz, who rode the wave of boutique coffee’s increasing popularity by merging it with his own coffee outlets and expanding Starbucks around the Pacific Northwest. By the time of its IPO in the early 1990s, Starbucks had 140 locations. Starbucks’ purchase of another boutique coffee crafter, The Coffee Connection, gave them the right to use the Frappuccino concept, which has become one of their staple menu items and provided them with $2 billion in annual sales or more since 2012. Starbucks has also branched out into serving snack foods, pastries, and meals. Despite its origins as a boutique coffee roaster, it’s currently considered among the top three largest fast-food chains worldwide.

Monster Beverage Corp (NASDAQ: MNST) specializes in manufacturing energy drinks like Monster Energy, Burn, and Relentless. Monster started out as Hansen’s in 1935, a Southern California company that focused on juice products. In 2012 it rebranded itself as Monster and then sold all its non-energy drink assets to the Coca-Cola Company in 2015. The energy drink market in the United States is rather large: Energy drinks are consumed by professionals who work late shifts, students, video gamers, and athletes. Monster has a sizable share of this industry, garnering an approximate 40% market share against competitors like RedBull and Rockstar. Monster was an official premier sponsor of NASCAR from 2016-2019, and they continue to sponsor individual drivers. Since the 2015 deal with Coca-Cola, Monster and Coca-Cola have partnered up in terms of distribution, which has helped Monster become accessible in 114 countries worldwide and obtain the $821 million in annual revenues.

Heineken N.V. (Euronext: HEIA) was founded in Amsterdam in 1864 by a brewer who perfected a special recipe of bottom-fermenting yeast. He opened a second location in Rotterdam just a few years later. In the 20th century, Heineken stabilized its recipe for large-scale production and stepped up its export business. Just a few days after prohibition ended in America the first shipment of Heineken arrived in the United States, and it has remained one of the most popular and successful imported beers among U.S. drinkers. After WWII, Heineken attempted to increase its own stock price by buying out other breweries and closing them down. It also merged with one of its biggest competitors, another Dutch brewery, Amstel, in 1975.

With its acquisition of Scottish and Newcastle, Heineken became the third-largest beer company in the world, but when SABMiller and Anheuser-Busch InBev merged in 2016, Heineken was bumped up to second place. As of 2017 Heineken revenues surpassed $23 billion.

Anheuser-Busch InBev (Euronext: ABI) is the world’s largest brewery, even before it acquired SABMiller. It is considered one of the world’s largest and most successful companies in terms of fast-moving goods, such as alcoholic beverages, with a 28% market share of the global beer market. Anheuser-Busch was an American brewery started by a German immigrant in St. Louis. It is the company behind Budweiser, which was America’s first nationally bottled and branded beer and meant to transcend regional tastes. Incidentally, Anheuser-Busch still operates 12 breweries in the U.S., and through Busch Entertainment Corporation and its 10 theme parks, it is one of the country’s largest theme park operators. SABMiller (South African Breweries Miller) was headquartered in London and served its brewed and bottled products in 80 countries. This included Fosters, Millers, and Pilsner-Urquell. Anheuser-Busch InBev is also a major bottler and distributor of Coca-Cola products.

Beverage ETF

Predicting the ups and downs of the stock market can be difficult. For some retail investors, it might be better to avoid panning for gold among the biggest stock losers and instead buy shares in exchange-traded funds or ETFs. Such an ETF is like a mutual fund in that it’s a pooled investment, but instead of contributing select amounts of cash, investors must buy priced shares.

While there is not an ETF exclusively devoted to beverage companies, investors can look at options like Invesco Dynamic Food & Beverage ETF (PBJ), the top ten holdings of which include both PepsiCo and Coca-Cola. Another option might be to investigate a consumer staples ETF such as the SPDR Consumer Staples Select Sector Fund (XLP). This fund contains holdings across the consumer staples industry, with companies like Walmart and Colgate-Palmolive, but it also is invested in beverage companies like (once again) Coca-Cola and PepsiCo.

Should You Invest in Beverage Stocks?

Many of these beverage companies have been around for a century or more, and have reached the point of global distribution—so you won’t find them among cheap stocks to buy now. Even so, there is nothing too speculative about the industry, unlike the tech industry for example, which means that beverage stocks tend to be very reasonably priced and appropriately valued.

Their growth patterns are steady, and with products constantly moving, cash flow is usually good in all types of markets; people always need to drink and will even continue to drink alcohol on a regular basis, even during economically difficult times. This means that beverage companies don’t need to reinvest huge amounts of profit, and can pay it out in the form of dividends. In fact, certain investors like Warren Buffett have made beverage stocks like Coca-Cola a huge part of his portfolio and his dividend investing strategy.

Like most consumer staple stocks trading on the market, beverage stocks are a great addition to your stock portfolio. Their growth is slow and steady, they pay dividends, and the companies themselves are stable. All of this can help create a solid portfolio foundation that can balance out other more volatile, growth-focused or speculative holdings. There are also a decent number of choices in terms of beverage stocks, some of which, like National Beverage Corp (NASDAQ: FIZZ) were not discussed here.

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
The Coca-Cola (KO)2.0$52.70flat3.11%27.45Buy$52.94
PepsiCo (PEP)2.4$144.60flat2.83%28.63Buy$144.40
Starbucks (SBUX)2.5$98.66flat1.82%88.88Buy$88.44
Monster Beverage (MNST)1.6$84.15flatN/A37.74Buy$84.23
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