Dr Pepper Snapple Group Inc (DPS) Stock Can Punch Above Its Weight

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Dr Pepper Snapple Group Inc. (NYSE:DPS) is about one-tenth the size by market cap of its rivals PepsiCo Inc (NYSE:PEP) and The Coca-Cola Co (NYSE:KO). But this soft drink maker and distributor certainly punches above its weight, and DPS stock can be a sneaky-good winner for new money.

Dr Pepper Snapple Group Inc (DPS) Stock Can Punch Above Its Weight

The soft drink industry has now begun a significant transition from a sweet, carbonated soda model to healthier alternatives with less processed sugar, sweeteners and artificial flavors. And, in early November, cities in the U.S. began levying taxes on soft drinks and other sugar filled goodies.

If you look at any of the big players’ stock charts, you will see a distinct selloff around early November because of this news. But, DPS has recovered well since then.

Dr Pepper Snapple has the advantage when it comes to transitioning markets because it is smaller than its rivals. Plus, it can make changes that go to the top and bottom lines much more quickly than PEP and KO.

DPS Is Much More Than Just Dr. Pepper

DPS is already king of the ginger ale and root beer verticals, owning many of the most iconic brands out there, from Schweppes to IBC. It also has a strong stable of mixers such as Rose’s, Mr & Mrs T’s, Margaritaville and Clamato (a preferred base for a classic Bloody Mary).

Plus, its line of alternatives keeps growing, e.g., the Snapple juice and tea line, Fiji Water, VitaCoco, Core Hydration and its pioneering Fruit20 line. Dr Pepper Snapple also has a solid selection of energy and sports drinks as well — All Sport, Body Armor and Hydrive.

But, the biggest recent news was the company’s acquisition of Bai Brands for $1.7 billion in late November. Bai is a hot new brand that was founded in 2009 by a coffee industry pioneer in his basement. It’s rumored that the name “Bai” comes from either the Chinese word for “pure” or the acronym “botanical antioxidant infusions,” or perhaps both.

Regardless, going from zero to $1.7 billion in a mere eight years gives you an idea of how dynamic this new drinks market is.

Another example: Sales of Bai in 2015 were $120 million. In 2016, it’s looking like revenue will hit $300 million. And, expectations are that revenue will hit $425 million this year.

Bai now has the distribution and shelf power of DPS to grow its business even faster than what was possible on its own. Plus, there are many interesting flavors that will certainly be popular in international markets that are already used to unique fruit drinks. Having DPS access in these markets will be huge.

Plus, the addition of a fast-growing division like Bai will be seen very quickly on DPS’ bottom line, which will help boost the stock short to intermediate term. KO and PEP don’t have that luxury; their new additions will take time to see any movement in their huge product lines.

Bai also helps DPS stock in its transition to more health-conscious soft drinks, since much of its revenue (~80%) now comes from carbonated drinks.

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.

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