These 3 Stocks Can Freshen Up Your Portfolio
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Wakey, wakey, eggs and bacey!! Time to pad downstairs and slug some joe. Ohhh noooo! Out of coffee?! No home brew to take the edge off?! If you're like 60% of Americans, this is a disaster as we need our morning java. Over 100 million Americans, or 83% slug down a cup of joe every single day, creating an $18 billion specialty coffee market in the U.S. alone.
Since the American Revolution, when it was considered a patriotic act to drink coffee instead of tea, the U.S. has ranked as one of the top importers of coffee, importing five times as much as the U.K., making coffee the most traded commodity after oil.
Coffee is the raison d'etre behind Green Mountain, what's helped Smucker soar, and the jewel in the crown at Kraft Foods Group, the spin off of Mondelez International.
So, which one is making the most money from our collective coffee consumption?
Mojo from Joe
J.M. Smucker bought Folger's just five years ago from Procter & Gamble for $3 billion. It is certainly its most accretive acquisition ever. Coffee is now the biggest revenue driver for J.M. Smucker. It also owns Cafe Bustelo, home-use Dunkin' Donuts, Medaglia D'Oro, Millstone, Pilon espresso, and Kava; most of those are the specialty brands available at my supermarket.
Coffee is so important to them that one of its three operating divisions is dedicated to it, U.S. Retail Coffee. The other divisions are U.S. Retail Foods and International, Foodservice, and Natural Foods.
It's almost as daily an occurrence as drinking coffee for this stock to make new highs as it did on July 19, and yet, the trailing P/E at 21.68 and a 2% yield is not outrageous. It just raised the yield 11.5% on July 15.
The company has expanded its coffee production facility in New Orleans. Now, if it'll only buy the Cafe du Monde coffee brand. Q4 results showed a 17% rise in net income per diluted share, the buyback of 4% of shares, an increase of 7% in gross profit, and guided an increase of $600 million in free cash flow in FY 2014. Analysts see five-year EPS growth at 7.45%, which sounds in-line with the company's expectation of mid single-digit growth.
Smucker also has a partnership with Green Mountain for K-Cups of its coffee brands. A Wall Street Journal article on coffee prices quoted research firm Mintel, "Contradicting recessionary trends that saw consumers curtail spending, premium-priced single-cup coffee has led the growth in the coffee category between 2010 and 2012." That's good news for both Smucker and Green Mountain Coffee Roasters. Smucker's Q4 earnings also reflected a gain of 18% in its K-Cup sales.
Goldman Sachs announced on July 18 that Nielsen numbers showed sales had grown 15.7% for Green Mountain's K-Cups, but noted the space was still competitive. Sun Trust found the increased market share number so encouraging that it rated Green Mountain a Buy.
Green Mountain Coffee Roasters has been inundating the late night infomercial space with its new Vue coffeemaker. (That's what happens if you drink coffee too late at night, you see all the infomercials.)
The company has also been aggressively marketing its brew over ice K-Cups as it expands from hot beverages and adds value to the Keurig machines. And in other news, the company may be making some sort of beverage carbonation machine after filing for a trademark application. That would be another opportunity for it to extend its franchise. Analysts have been predicting a 21% five-year EPS growth rate and I have to agree with them with all these promising initiatives.
Green Mountain is becoming less of a battleground stock with gross margin at 41.32%, better than both Kraft at 33.06% and Smucker at 35.81%. The beta is now only 0.49 and the PEG at 1.09 makes this company worth investing in.
Then there's Kraft Foods Group, undoubtedly the best known of these three names (and no, absolutely no relation) which kept most of the domestic brands after its spin-off last fall: Cool Whip, Planter's Nuts, Oscar Meyer, Jell-O, Velveeta, Kraft Macaroni and Cheese, and of course, Maxwell House.
Maxwell House is the biggest coffee brand competing with Folgers. Kraft Foods is J.M. Smucker's most direct competitor, competing on peanut butter, Kraft Lunchables vs. Uncrustables, juices, and baking products. Kraft Foods also owns coffees, Gevalia Kaffe and Yuban, as well as flavored Maxwell House International.
It was always expected that Kraft Foods would be the slower grower after the spin-off, justifying a higher dividend, currently 3.50%, with annual revenue of $18 billion and an expected $2.75 EPS in 2013. However, its share price appreciation of over 25% is better than Mondelez at 20%. The company reported solid Q1 results of $0.76 EPS and reaffirmed its guidance.
Kraft Foods is running a tight ship, so much so, that on the call, Kraft CEO Tony Vernon said, "Our first quarter results reflect strong returns on our new product innovations to date, as well as the fact that our cost savings outpaced our plans to reinvest in our brands." Now, there's a problem that many CEOs wished they had.
A reflection of efficiency I like is revenue per employee (RPE) to compare with Google's figure of $993,279. The RPE at Kraft Foods is an impressive $801,391, but surprisingly, J.M. Smucker beats Google with $1,209,785 RPE.
The Foolish takeaway
None of these three are a pure play on coffee and that's a good thing as commodity costs' volatility need to be offset by other revenue streams. Green Mountain's possible challenge to SodaStream is heartening for its shareholders and K-Cup sales are stronger than expected (just how I like my coffee.)
Smucker keeps executing well and is a good buy on pullbacks from these constant 52-week highs. Kraft is the better buy than Mondelez and if you're seeking yield, then this is the one for you.
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AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters. 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!