5 Beverage Stocks the Smart Money Is Buying, Are You Invested?
Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
After identifying the most popular stocks among hedge funds (see our Top Ten here) according to their third quarter 13F filings, we have decided to break down the top five stocks that hedge funds love in the beverage industry. Many of these beverage companies trade as relatively stable stocks and should see growth from volume increases on a bolstering economy. Our list includes the hundreds of hedge funds and prominent investors that are required by the SEC to disclose their public equity holdings quarterly. In order from top to bottom we have outlined the most-loved beverage stocks based on the aggregate number of funds owning each.
The Coca-Cola Company (NYSE: KO) was the top beverage company by far with 58 filers - following a net increase of 10 filers - the largest increase amongst our five stocks. Sales were up over 32% in 2011, driven by full year inclusion of the 2010 acquisition of Coca-Cola Enterprises' North American operations. Coca-Cola has become more focused on North America with the Coca-Cola Enterprises acquisition and the selloff of its Norway and Sweden bottling operations. Volume is expected to remain solid over the next few years, rising in the high single digits on better penetration of emerging markets. Coca-Cola is Warren Buffett’s top investment as of 3Q—with over 20% Berkshire’s 13F invested in the beverage company (check out all of Warren Buffett’s newest picks).
PepsiCo (NYSE: PEP) was in second with 38 filers after a net decrease of 8 filers - the largest decrease of all our five stocks. Unlike Coca-Cola, Pepsi has most of its exposure internationally and has seen weak volume of beverage sales in the Americas. Pepsi expects to have spent upwards of $600 million on brands and marketing in North America by the end of 2012 to help boost its presence in this lagging segment. Compared to top rival Coca-Cola, Pepsi trades with the cheapest P/E - 18x compared to Coca-Cola's 20x - and the highest dividend - 3% compared to Coca-Cola's 2.7%. What sets Coca-Cola apart and puts it as the most loved beverage stock may be its growth prospects; KO's expected five-year EPS growth rate is 8%, double that of Pepsi.
Monster Beverage (NASDAQ: MNST) had 25 filers owning the beverage company at the end of 3Q to come in third. The energy drink company is down over 30% during the last six months on various concerns over the harmfulness of energy drinks. This could present a buying opportunity for investors, where Monster is expected to grow five-year earnings at 19% annually - the most of our five stocks. Sales grew by 30% in 2011 and are expected to continue their solid growth, with expectations of a 20% marginal increase by the end of this year. Driving this robust growth will be expansion efforts, where Monster recently launched in Ecuador, Hong Kong, Macau and Slovenia, and plans to launch in Chile, Peru and Singapore very soon. Billionaire Jim Simons was the top fund owner of those we track at the end of 3Q with over 3.3 million shares (see all of Jim Simons’ top picks here).
Coca-Cola Enterprises (NYSE: CCE) came in as the fourth most popular beverage stock loved by hedge funds with 24 filers. Coca-Cola Enterprises was formerly the largest bottler of Coca-Cola products before selling off its North American operations to Coca-Cola. Revenue fell nearly 60% in 2010 following the sale, but rebounded 11% in 2011. At the same time that Coca-Cola Enterprises was selling off its North America operations, it was expanding internationally with the purchase of Coca-Cola's Norway and Sweden bottling businesses, while securing the right to acquire its un-owned 83% equity stake in German bottling operations. The restructuring plan should be a long-term positive for the bottling company as it gains greater access to overseas markets. Coca-Cola Enterprises also trades at a significant discount to other major bottling peers at 13x earnings and could be considered a value play.
Fomento Economico Mexicano (NYSE: FMX) found itself in fifth with 19 filers. Fomento is a Mexico-based holding company engaged in the beverages industry, with other operations that include convenience stores. The beverage distributor made a key growth move of late, hoping to expand its operations and diversify revenue streams. Fomento recently announced the acquisition of 75% of Mexican drugstore operator Farmacias. Fomento trades at the high end of the industry at 28x, with its forward P/E of 22x putting it more in line with peers. We see Fomento as having the most diverse revenue stream of our five beverage companies listed here.
To recap: the two industry giants, Coca-Cola and Pepsi, provide solid income prospects with robust dividends, but for growth, investors should look toward Monster. Fomento is also an interesting opportunity, with the beverage company planning to continue its expansion into other markets that will provide cross selling opportunities.
This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of Monster Beverage and PepsiCo. Motley Fool newsletter services recommend The Coca-Cola Company, Monster Beverage, and PepsiCo. 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!