3 Companies to Quench Your Summer Thirst
Todd is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It probably doesn't surprise you to learn summer is a good time to own shares in beverage companies. The hot summer sun has a way of boosting demand for frost cold favorites.
While Fools shouldn't be buying and selling portfolios every few months, knowing seasonal trends likely to reward or punish a particular company can help you decide if the time is right to buy.
According to the Seasonal Investor database, each has finished the third quarter higher in 7 of the past 10 years and boast low correlations to the market, which could help insulate you if the market rally takes a breather.
Peeling lids versus popping tops.
The biggest innovation at Sam Adams this summer may not be its latest seasonal beer. Instead, it may be its newly launched cans. Sam Adams has always kept its beer bottled, as founder Jim Koch is a relentless pursuer of taste. But a few million dollars and a trash bin of research and development has yielded a can finally deemed worthy for Sam's brew. According to Wall Street analysts, that could mean big business for Sam Adams given the craft brewer has been essentially locked out of bottle free venues, until now.
Next year, those analysts expect Sam's earnings per share will total $5.66, about 14% higher than what is expected this year. Revenue is estimated to improve 10% to $771 million. That's solid growth within the mature beer market and reflects fast growth for craft brews. According to the Brewers Association, craft beer saw volume growth of 15% last year, far ahead of the 1% notched by the broader beer category.
Highly caffeinated profit growth.
Monster's widely popular energy drinks are a staple across college campuses and truck stops. But sales haven't come without headaches. The company has missed analyst estimates in each of the past four quarters and faces legal threats suggesting high caffeine products contribute to deaths. Those are stiff winds to overcome.
But the company may find firmer footing as it rolls its products in new markets like India. And Monster may also see growth thanks to new products including its Muscle Monster line of protein shakes. Analysts project such growth drivers will lift sales 10.5% to $2.5 billion next year.
As for those lawsuits, Monster isn't the first company to be targeted for high caffeine content. The FDA filed a lawsuit against Coca Cola (NYSE: KO) in 1911 for adding caffeine to its iconic drink.
Given people refuel with 5 million Monster drinks a day -- some 250,000 cans an hour -- and a 16 oz Starbucks is packed with more caffeine than a 16 oz Monster energy drink, the company appears to have a compelling argument against lawsuits.
Secret formula to dividend growth
Coca Cola keeps its secret formula locked away in a vault in Atlanta for good reason. The company has built a mega brand on the back of its cola brand.
However, top line growth will likely remain timid given the cola market is mature. So, Fools should focus on the bottom line instead. The ability to increase earnings is critical for future dividend growth, which is important for income conscious shareholders.
Coke's earnings track record is strong. Its earnings per share have grown a compounded 10% annually over the past three years. This allowed Coke to up its quarterly dividend 10% to $0.28 per share this year, marking the 51st consecutive year of dividend increases.
The final take
If you're wondering whether now is a good time to pick up shares in these leading beverage companies, seasonality suggests it is. As more people move up into the middle class in emerging markets, sales of leading brands should benefit, helping deliver more money to beverage bottom lines. Of course, there are never guarantees and stumbles may stall sales along the way. But, as long as populations are growing and summers remain hot, people will keep drinking, making beverages a Fool-ishly interesting idea.
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Todd Campbell has no position in any stocks mentioned. The Motley Fool recommends Boston Beer, Coca-Cola, Diageo plc (ADR), Molson Coors Brewing Company, and Monster Beverage. The Motley Fool owns shares of Boston Beer and Monster Beverage. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!