Prepare for the Worst With Beverages
Phillip is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Despite the economy appearing to be charging forward, it is always a solid idea to add stability to your portfolio. Do this by insulating your investments from a recession in case an economic slowdown reveals its ugly bearish head. Beverage companies are a surefire way to add stability to your portfolio in case of a recession. After all, people still need to drink when the economy is in the gutter.
Coca-Cola shows tech savvy
Coca-Cola (NYSE: KO) looks to make purchasing a beverage much easier by offering Interac Flash contact-less debit-transaction options on vending machines. The company rolled out the devices at the Calgary Stampede on July 5, with 16 vending machines carrying the option, according to Canada Newswire. The technology allows users to hold their Interac Flash-enabled cards to the reader to make the transaction.
The deployment of easier transaction capabilities could have more people buying Coca-Cola, as people now aren't required to have cash on them to buy from the machines. That could indicate a buy for the stock. Furthermore, according to Morningstar, the company is undervalued. The firm considers Coca-Cola's fair value to be $45, though the company is priced just over $40. I see Coca-Cola as one of the safest investments for your portfolio because of its ability to stay strong through good times and bad.
PepsiCo releases a new snack
PepsiCo (NYSE: PEP) has continued to rake in billions of dollars from its beverage operations, but on July 5 it released a new snack to boost sales at the Frito-Lay division of operations. The new French fry-shaped potato snack is marketed under the brand's Ruffles product and is called Ruffles Crispy Fries Potato Strips. Innovations of products such as these are important to the company's bottom line, as the snack often peaks the curiosity of those who regularly buy from the company and those who are potential new customers. The company often releases new products, and creates new flavors of existing products.
According to Morningstar, PepsiCo is slightly under-priced, with a fair market value assessment at $88; the company is currently trading around $84. The firm is more diversified than Coca-Cola, with its extensive and popular snack division. Furthermore, I see the company being strong long into the future because of its direct-store delivery system that provides the firm with the leverage in its portfolio of brands. In fact, the company owns about 64% of the salty-snack market in the U.S.
Dr Pepper gets in on summer action
The Dr Pepper Snapple (NYSE: DPS) is also getting in on product releases. However, this company isn't as diversified as PepsiCo. The company announced in June that it is releasing Snapple Lemon Daze lemonades only for this summer.
According to Morningstar, the fair value of Dr Pepper is $44, making the stock overpriced at its current level of around $47. However, that shouldn't be taken to mean that the company is not able to increase profits.
In fact, the firm has gained market share over other companies in the U.S. soft- drink market. It is still ranked third, behind Coca-Cola and PepsiCo, with 16% market share, while the other two have 40% and 30%, respectively. Coca-Cola and PepsiCo are also much more exposed internationally, and that could be a hindrance to the future prospects of Dr Pepper if it isn't able to expand.
Beverages add stability
Investing in these companies will help to add some stability to your portfolio in the event that there is a new recession. The companies are all positioned to profit no matter the condition of the overall economy. The continual product releases and ease of transactions will help ensure these firms continue to grow profits.
However, I see Coca-Cola and PepsiCo as being most capable of expanding internationally, and they already have a considerable amount of operations abroad. On the other hand, Dr Pepper has the ability to boost revenue if it manages to market to other countries.
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Phillip Woolgar has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of 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!