Dr Pepper Snapple Group Inc. (DPS) has suffered along with the rest of the soft drink industry in recent months.
A new study has come out that shows that not only is soft drink consumption at homes slowing down, but consumption in restaurants is also declining.
This is important because home consumption waxes and wanes with health concerns and dietary habits. Right now, people are trending away from having soft drinks in their homes.
However, restaurant consumption has always remained strong, if not growing. The thinking is that even if people don’t buy the sweet stuff for their personal use, they will continue to buy it when they’re out for an occasion.
That is why this downtrend in soft drink consumption is hurting the entire sector.
But DPS is in a much different position than the two majors, The Coca-Cola Co (KO) and PepsiCo, Inc. (PEP).
DPS Stock’s Unique Position
First, it’s much smaller. It’s about 1/10 of the size (market cap) of KO and PEP. That means it’s a player in North America, but its market position is more about niches than brand domination.
Second, because it only distributes in North America, it doesn’t have to deal with a slowing global economy or the effects of a strong dollar.
Third, DPS is well diversified for its size. DPS owns the major brands Dr Pepper, Canada Dry, 7UP, A&W, Hires, IBC, Stewart’s, Sunkist, Squirt, Crush, Schweppes, Vernor’s, RC Cola, Snapple, Hawaiian Punch, Mott’s, Clamato, YooHoo, Mr & Mrs T, Rose’s, Margaritaville and others.
DPS has an ability to maximize its exposure in niche markets — like root beer, noncarbonated beverages and, of course, Dr Pepper. Dr Pepper was first served officially in 1885, in Waco, Texas, making it the oldest carbonated beverage of all the major brands.
Dr Pepper Snapple has made a business of building unique products in a unique market for well over a century at this point. It just doesn’t really get recognition of the two majors.
But it deserves some respect. In the last 12 quarters, even during challenging economic times, it has met or beaten earnings 92% of the time, according to Zergwatch. It also pivots well when it sees challenges ahead.
For example, as health drinks trend up in place of overly sweet traditional soft drinks, DPS has moved along with the trend. It recently announced it increased its investment in Bodyarmor, an all-natural sports drink maker. It has committed another $6 million, on top of its $20 million, to become the second largest shareholder in the company, with 15.5%.
NBA stars James Harden and Kristaps Porzingis; NFL celebs Dez Bryant, Andrew Luck and Richard Sherman; and soccer star Sydney Leroux are already on board for this new sports drink maker.
The point is, DPS knows how to survive without having to run with companies that are 10x its size. It knows what it does well and continues to take advantage where it knows it can succeed.
All that, and a 2.3% rock-solid dividend to boot.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
