Investors are always on the lookout for hot stocks. We are headed toward historically weak months for the U.S. stock market and the question that is arising in the minds of investors is where to invest focusing on what’s worked in the past. This directs us to the seasonally strong stocks that investors can add to their portfolio and stay cool for the rest of summer.
There are plenty of sectors and industries that do well in the warm months and promise solid returns. One among them is the beverage industry (comprising both non-alcoholic and alcoholic).
Changing lifestyle along with consumer preferences, demand through rising population and increase in high disposable income are driving the beverage industry.
According to ReportLinker quoted on PRNewswire, the global beverage market is likely to reach $1.9 trillion by 2021 and witness a CAGR of 3% from 2016 to 2021.
Growing urbanization as well as disposable income are its main drivers.
Notably, the Zacks classified Beverage industry grew 13.2% so far this year, faring a lot better than the broader S&P 500 market’s 9.1% gain. The Zacks categorized Beverages/Soft Drink industry has returned almost 14% while that of Beverage-Alcoholic industry 14.2%.
The S&P 500 Food and Beverage Select Industry Index has gained in three of the last four years in the summer months. In the last one year, the index has gained 6.3%. If this sounds refreshing, investors can quench their thirst and dive into the ever-changing dynamic beverage industry.
Changing demographics and purchasing behaviors make it important for beverage industry giants to understand and capitalize on main consumer insights that identify growing trends. Health awareness has been the prime concern for consumers in recent times and capitalizing on this trend can prove to be beneficial for any beverage company in 2017.
Continuing decline in carbonated soft drinks or CSDs and impressive growth in non carbonated beverages are creating headaches for many established players like PepsiCo, Inc. (NYSE:PEP), The Coca-Cola Co (NYSE:KO), and Dr Pepper Snapple Group Inc. (NYSE:DPS) – leading to lower volumes and weak sales. Among CSDs, the cola segment particularly has been facing challenges as consumers are opting for alternatives. Also, potential new taxes on sugar-sweetened beverages and growing regulatory pressures are affecting CSD sales.
Cola companies are gradually reshuffling their portfolio toward healthier options. Beverage giant Coca-Cola and its largest Latin American bottler Coca-Cola FEMSA, S.A.B. de C.V. (ADR) (NYSE:KOF) recent acquisition of AdeS soy-based beverage business from consumer products giant Unilever Plc UL, is a proof to it. Also, Dr Pepper Snapple Group acquired antioxidant beverages maker Bai Brands LLC for $1.7 billion in January.
Favorable Metrics Grace the Industry
The Zacks classified beverage industry is expected to grow 18.6% this year, higher than the broader market’s expected earnings growth rate of 9%. ROE of the industry stands at 26.8% compared with the 15.6% figure of the S&P 500.
Interestingly, Beverage-Alcoholic industry is expected to witness a solid 40% growth this year (a lot higher than the broader market’s 9% expected growth) on 9.7% revenue growth. In fact, the positive momentum is evident from the robust Zacks Industry Rank (Top 29% out of 256 industries). The industry’s trailing 12-month ROE stands at 22.88%, compared with the broader market’s 15.63% level.
Here Are Our Beverage Stocks to Cool Off
Investors can bank on these “summer” stocks, which are making the most of consumer dynamism amid shift in preferences. We have chosen companies with the help of Zacks Stock Screener that flaunt a Zacks Rank #1 (Strong Buy) or #2 (Buy) and other important metrics.
Compania Cervecerias Unidas S.A. (ADR) (NYSE:CCU) operates as a beverage company principally in Chile, Argentina, Bolivia, Colombia, Paraguay, and Uruguay.
The stock carries a Zacks Rank #1 and has a market beta of 0.46. Compañía Cervecerías has climbed 13.4% in the last one year, outperforming the Beverage industry. You can see You can see the complete list of today’s Zacks #1 Rank stocks here.
The company is expected to witness 29% earnings growth this year on 11.6% revenue growth. Estimates are trending upward for this beverage stock. In the last 60 days, estimates have moved north by 35.2% for 2017.
Craft Brew Alliance Inc (NASDAQ:BREW), another Zacks Rank #1 stock, is engaged in the business of brewing, marketing and selling of craft beers in the U.S. Its earnings estimate for the current year increased 8 cents in the last 60 days. The stock has climbed 68.8% in the last one year, outperforming the beverage industry.
Santiago, Chile-based Embotelladora Andina SA (ADR) (NYSE:AKO.B) produces and distributes Coca-Cola products in Chile, Brazil and Argentina. It also produces juices and mineral water, and processes and distributes agricultural products, including canned fruits and tomato products through subsidiaries.
The company carries a Zacks Rank #2 and returned 21% in the last one year, faring a lot better than the Zacks classified Beverage industry’s gain of 3.3% as well as the broader S&P 500’s 14.9% growth.
The stock also boasts an impressive VGM Score of ‘A’. In the last 60 days, the Zacks Consensus Estimate for current year’s earnings moved up 12.6%. Embotelladora has a projected EPS growth rate of 36.5% in 2017, a lot higher than the beverage industry’s average of 18.6%.
Constellation Brands, Inc. (NYSE:STZ) is one of the largest multi-category suppliers of beverage alcohol in the U.S. The stock has climbed almost 20% in the last year, faring a lot better than the meager industry growth. Constellation Brands has an expected revenues growth rate of 18.2% for the current year on 4.3% revenue growth. The stock has a Zacks Rank #2 and its 3–5 year expected EPS growth rate is pegged at a solid 17.83%.
Lastly, Davide Campari Milano SpA (ADR) (OTCMKTS:DVDCY), a Zacks Rank #2 stock, is engaged in the beverage industry, which has spirits, wines and soft drinks segments. The stock has climbed 50.2% since it started trading late last year. It has a Momentum score of “A”.
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