Don't Pressure This Soda Stock
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I hope you all enjoyed your Super Bowl grub. I hope you also enjoyed the 1% stock price bump that your Super Bowl advertisers like Coca-Cola (NYSE: KO) and PepsiCo (NYSE: PEP) had and will enjoy for one more week. But don't count out SodaStream International (NASDAQ: SODA) the Israeli soda machine maker with 150 flavors of beverages (and mostly not soda.)
Is all the buzz over?
You have to admire the chutzpah of SodaStream buying Super Bowl commercial time for its commercial spoofing the Coke-Pepsi rivalry at the same time graphically showing how many bottles (500 million) using a SodaStream could save just on Super Bowl Day alone. While CBS rejected the ad (wusses!) it went viral on YouTube and I saw it on Saturday night on NBC. It looks like the $4 million they spent on the ad wasn't wasted after all. They had an alternate version that already generated controversy in Europe that played during the Super Bowl. (The Coke-Pepsi bottles exploding ad really is better.)
SodaStream has managed to power higher over the last year with some positive initiatives coming for 2013: individual flavoring packets called SodaCaps available later this year, availability at Wegman's, one of the most popular supermarket chains in the US, prized shelf real estate in Wal-Mart (the holy grail for product display-the end cap), and a big move into the emerging markets of Brazil, Mexico, and India.
The Wegman's and Wal-Mart moves are particularly significant as 15,000 US retail outlets exist, but getting into these everyday necessities stores is crucial to really reaching the tipping point. With 60,000 retail outlets in 45 countries expanding in these huge emerging markets is a huge driver. Analysts still expect a 30.35% year over year EPS growth rate over the next five years.
SodaStream is trading at a 25.14 P/E, has no debt, and has a huge 55.50% short interest. Shorts may want to ease off pressure on this soda stock before they find it explodes in their face especially before their next earnings release as they've already reported four great consecutive quarters.
Coke vs. Pepsi
You probably know that Coca-Cola is Warren Buffett's favorite beverage and stock. The stock has almost doubled since a 2005 low of $20.16 but before the 1990's it traded under $5.00.
Coca-Cola is truly expanding away from sodas into lines of functional waters, energy drinks, teas, and fruit juices. Coca-Cola is trading at a 19.62 P/E with a yield of 2.70%. It has 168 times the market cap of SodaStream. Analysts see 8.80% EPS growth over the next five years for Coca-Cola.
Sometimes when things change it is for the better. As an example of Coca-Cola moving forward maybe you remember a time when people took car trips to Florida, bringing back freshly picked oranges. Maybe you think the juice from those oranges couldn't be improved on, but Coca-Cola now has their own calculus for OJ with technology assuring the best tasting OJ year round as it moves even further from its core brands of Coca-Cola and other carbonated beverages.
Coca-Cola has 28% share of the US market for not-from-concentrate OJ. Pepsi-Cola, its rival holds 40% of OJ market share and it too, has spent years diversifying away from carbonated beverages. When it comes to soda market share simply flip the numbers for these two.
But maybe what they also need to do is go back to the original soda formula with real cane sugar for the Cokes of yore. The furor over new and classic Coke may still resonate with older shareholders as one of the biggest flubs in corporate history. The Mexican Coca-Cola with real cane sugar in a glass bottle is the hot new foodie must-have. That real Coca-Cola (and Pepsi Cola) taste is still something reviewers have said the SodaStream can't seem to duplicate.
PepsiCo also has the non-carbonated beverages as well as an ever growing portfolio of food brands, not just snacks but cereals and side dishes, too. PepsiCo is trading at a 19.50 P/E with a 3.00% yield at a 56% ratio and the share price is close to its 52 week high. It is underperforming the S& P, only up 9.25% over 52 weeks. Analysts predict the lowest 5 year EPS growth for Pepsico of these three at 3.90% per annum. PepsiCo has a respectable 26.10% return on equity but a higher percentage of debt to cash than rival Coca-Cola.
The final score
PepsiCo and Coca-Cola are reporting in mid-February and any Super Bowl bump will likely be short lived as neither's ads were anything special this year. They are good holds if you are a very long term investor but for true growth (with a little volatility) SodaStream is really gaining speed.
Yes, PepsiCo and Coca-Cola have yield and are moving away from carbonated drinks with OJ and other non-carbonated innovation (Coca-Cola) and foodstuffs expansion (PepsiCo) prove. It just depends whether you want yield or growth. It's up to you.
leglamp has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola, PepsiCo, and SodaStream. The Motley Fool owns shares of PepsiCo and SodaStream. 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!