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21 Beverage Stocks to Buy for the Contrarian-Minded

Changes in consumption habits have pressured beverage-makers, but the industry might be in the early stages of a comeback.

By Josh Enomoto, InvestorPlace Contributor

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Source: Shutterstock

Researching beverage stocks to buy is a smart move because of the simple fact that the sector is largely secular. No matter how the underlying economy is performing, people still need to drink. That constant demand is a significant advantage for companies in the field.

But just like any other industry, beverage-makers have experienced dramatic shifts in consumer tastes and preferences. Most notably, today’s drinkers prefer healthier, more natural fare. This trend, which differs from prior generations’ penchant for sugary refreshments, has forced companies into adjustments.

Beyond a preference shift, industry players must also contend with rampant competition. Go to any grocery store and you’re immediately inundated with choices. This dynamic means that in order to survive, even the biggest beverage-makers must adapt to an ever-evolving market.

It’s this newfound competitiveness that makes this sector suddenly attractive. Here are the 21 best beverage stocks to buy right now.

Beverage Stocks to Buy: Coca-Cola (KO)

Beverage Stocks to Buy: Coca-Cola (KO)
Source: Coca-Cola

Among beverage stocks to buy, Coca-Cola (NYSE:KO) stands alone. No other competitor has the brand recognition, nor the cultural impact that Coca-Cola levers. While many upstarts have attempted to steal its thunder, the iconic company has found ways to remain relevant.

That corporate ethos was put to the test, though, in recent years. Younger Americans’ taste for soda declined, which hurt KO stock for obvious reasons. Moreover, Millennials gravitated towards healthier drinks with brands that they found more engaging.

To address this shift, Coca-Cola has incorporated many more drinks outside of the usual carbonated offerings. These include brands like Gold Peak, Honest Tea, Ayataka and FUZE TEA. But within their traditional product line-up, KO revitalized their marketing, making them more in tune with the times.

If their second-quarter earnings results are anything to go by, it’s working. KO surprised Wall Street with a solid beat on earnings and sales growth. But given the housecleaning, maybe they shouldn’t have been surprised at all.

Beverage Stocks to Buy: Pepsico (PEP)

Beverage Stocks to Buy: Pepsico (PEP)
Source: Shutterstock

Coming in second is usually a bittersweet experience. No one fights for the silver medal. In all racing disciplines, second place is the first loser. Even the phrase “number two” refers to a necessary but socially awkward function.

However, when you’re compared with Coca-Cola in terms of overall awareness and product popularity, life can’t be that bad for Pepsico (NASDAQ:PEP). But in recent years, KO and Pepsico have shared one thing in common: both shifted their gaze away from each other and towards their underlying industry.

With changing consumer tastes negatively impacting cola and other soda sales, the two beverage titans have been forced to adapt. KO has rebranded, as has PEP. A key difference, though, is that Pepsico has aggressively pursued the acquisition road with their $3.2 billion SodaStream buyout.

Reaction to the deal is mixed. Some are bullish on the move, while others feel it’s too expensive. In my opinion, it was both a smart and necessary acquisition, which gives PEP exposure to the sparkling-water segment.

Ultimately, the Pepsico brand isn’t going anywhere. They just needed to do something to keep them in the game, and I appreciate their strong efforts.

Beverage Stocks to Buy: National Beverage (FIZZ)

National Beverage (NASDAQ:FIZZ) isn’t a household name. Not only that, I don’t think it will ever become one. The company brand is too generic and sterile to be memorable. If I’m blunt, I’m surprised that the founders greenlighted the name.

But when it comes to their products, the tune immediately changes. This is especially the case for their carbonated-water offering LaCroix. As I mentioned last month for InvestorPlace, millennials can’t get enough of their sparkling-water fix. Not only does FIZZ lever a popular product, the underlying company is far from the big legacy businesses that young Americans typically don’t care about.

And compared to other beverage stocks to buy, FIZZ enjoys strong financials. Over the last three years, the company produced excellent sales and earnings growth. Better yet, the momentum is likely sustainable given LaCroix’s immense popularity.

That and its strong cash position and zero debt provides National Beverage with options its competitors don’t have.

Beverage Stocks to Buy: Danone (DANOY)

Beverage Stocks to Buy: Danone (DANOY)
Source: Shutterstock

Among beverage stocks to buy, Danone (OTCMKTS:DANOY) is one of the riskier ventures. I say that in part because shares have been so choppy over the last several years. So far this year, DANOY is down more than 4%. More critically, the beverage industry has faced stiff challenges, applying significant pressure on Danone.

But this is also a company that has a compelling comeback opportunity. While American consumers have shied away from sugary drinks, their love for water products remains strong. I’ve previously discussed the draw for sparkling water. But any kind of bottled water is popular. For instance, experts predict bottled-water sales to hit $230 billion by 2021. Currently, it’s around $200 billion.

Should this forecast pan out, DANOY stands to benefit greatly. That’s because they lever the ultra-popular, ultra-chic Evian brand. Coincidentally, the company’s push to promote their flagship product also comes at a time when Americans are seeking healthier fare.

Again, DANOY is a little speculative, but certainly worth considering.

Beverage Stocks to Buy: Nestle (NSRGY)

Beverage Stocks to Buy: Nestle (NSRGY)
Source: Shutterstock

Most millennials likely associate Nestle (OTCMKTS:NSRGY) with their popular chocolate-flavored milk products. Indeed, many parents found that Nestle beverages provided the only avenue to convince their young ones to drink any milk.

But beyond the company’s obvious appeal to children, NSRGY advantages a lesser-appreciated fact: in terms of sales, Nestle is the biggest bottled-water provider. To put this into context, Nestle beats out stalwarts like Coca-Cola, Danone and Pepsico. The beverage maker also exceeds sales of Trump Ice, although that might be fake news.

What’s not fake is Nestle’s almost-assured dominance in this sector. Its subsidiary Nestle Waters owns nearly 50 brands, including Perrier, S.Pellegrino, and Poland Spring. There’s firepower, and then there’s Nestle.

Finally, when stacked up against other beverage stocks to buy, NSRGY offers fairly strong financials. It has a stable balance sheet, along with consistent free cash flow. Moreover, Nestle features above-average profitability margins. While their historical earnings and sales growth has disappointed, the company is undergoing a noticeable recovery effort.

Beverage Stocks to Buy: Monster Beverage (MNST)

Beverage Stocks to Buy: Monster Beverage (MNST)

Most of the last five years has witnessed Monster Beverage (NASDAQ:MNST) tear up the markets, and for good reason. While millennials have eschewed sugary, carbonated drinks in favor of cleaner, healthier products, one sub-segment remains exceptionally popular: the energy drink.

You only need to look at Red Bull’s success story, which started off as a niche beverage-maker but has become one that now sponsors world-class Formula 1 teams. Red Bull, though, had one curiously distinct marketing element: their cans were small and thin.

Of course, that wasn’t just a marketing decision: the human body has a taurine-consumption threshold, after all. But the Monster difference was that they offered packaging that was bigger and wider than the typical 12-oz soda can. I have reservations about drinking that many stimulants, but consumers loved it.

Monster’s incredible popularity contradicts millennials’ penchant for healthy beverages. Still, I’m not going to fight the tape. Energy drinks will enjoy high demand for years to come, making MNST stock a viable, long-term investment.

Beverage Stocks to Buy: Kraft Heinz (KHC)

When most people hear the name Kraft Heinz (NASDAQ:KHC), they immediately think about their extensive food-products portfolio. However, KHC is a legitimate beverage maker. Some of their liquid brands include Kool-Aid, Country Time, Crystal Light and Capri Sun.

The latter brand is interesting because as children, they were difficult to drink from. Push the attached straw too lightly into the perforated mark, and you won’t get anywhere. Push too strongly and you’ll end up poking a hole on the other side of the pouched container. But when you got it right, the delectable reward made the trouble worthwhile.

That’s my view on KHC stock. On a year-to-date basis, shares are down more than 23%. However, this volatility makes Kraft Heinz worth a second look. It has some positives in the financials, including excellent profitability margins. The company is also undervalued relative to both trailing and forward earnings.

Plus, you get a generous 4.2% dividend yield. That makes KHC stock worth its weight in gold, considering broader market challenges.

Beverage Stocks to Buy: Starbucks (SBUX)

Beverage Stocks to Buy: Starbucks (SBUX)
Source: Shutterstock

Starbucks (NASDAQ:SBUX) has always been a favorite for coffee-lovers, and even casual consumers. This is the company that introduced the European-style café experience stateside, and later reintroduced it back to Europe.

But this year has not been kind to SBUX stock. Against the January opener, shares are down more than 7%, and further volatility may await. As has become alarmingly frequent, Starbucks was earlier involved in an ugly, race-based incident. I applaud that management took the issue seriously, although I believe their new policies leaves them vulnerable to deliberate pot-stirrers.

But with shares falling so steeply in recent months, I think it’s time to revisit SBUX as a contrarian opportunity. Despite recent troubles, Starbucks continues to deliver strong earnings and sales growth. Clearly, their customers are not going away due to poor but isolated headlines.

Starbucks represents the opposite situation of Papa John’s (NASDAQ:PZZA). You can have confidence that SBUX will recover. PZZA? Not so much.

Beverage Stocks to Buy: Dunkin’ Brands (DNKN)

Generally, the broader retail sector has suffered significant declines in foot traffic, leading many companies to downsize. This trend doesn’t apply to Dunkin’ Brands (NASDAQ:DNKN). Rather than shrink their physical footprint, DNKN seeks to increase it.

We’re not just talking about a garden-variety increase, either. Early this year, management disclosed plans to eventually double their stores to 18,000 locations in the U.S. To put that into context, the figure dwarfs 7-Eleven’s 8,300 stores. It also exceeds Starbucks, which currently boasts nearly 14,000 locations.

Although any expansion effort has significant risks, DNKN has much more upside potential. Coffee is a lucrative and addictive commodity. In addition, Dunkin’ levers an extremely popular brand. With their focus on expanding their drive-thru business, they can capture more revenue from busy professionals. Not only that, their confectionary delights tempt secondary and spontaneous purchases.

Beverage Stocks to Buy: JM Smucker (SJM)

Beverage Stocks to Buy: JM Smucker (SJM)
Source: Shutterstock

Consumers recognize JM Smucker (NYSE:SJM) primarily as a jelly and jam producer. Less recognized is their presence as a beverage-maker, specifically the morning joe. SJM owns several popular coffee brands, including Cafe Bustelo, Folger’s, and Kava. They also control Dunkin’ Donuts coffee via a licensing agreement.

Despite this significant footprint, SJM stock is down over 14%. Recent volatility suggests that more pain is on the horizon. In part, investors are leery about competition. With now multiple ways for consumers to enjoy coffee at home — such as pod coffees — the traditional method of bagged-coffee products seems antiquated.

At the same time, I think the bearish argument is getting long in the tooth. While pod coffees leverage the cool factor in their favor, they have deal-breaking disadvantages. We can talk about their safety or their environmental impact. For me, I care about the money, and the money in pod coffees makes zero sense.

I’m not merely referring to pod-maker’s cost; that’s chump change. Buying the individual pods weekly is what drives up the price. Bagged coffee isn’t sexy, but it saves you substantial green, which is why SJM is far from dead.

Beverage Stocks to Buy: Keurig Dr Pepper (KDP)

After blasting the pod-coffee industry, you might think it’s strange for me to feature Keurig Dr Pepper (NYSE:KDP). After all, Keurig started the whole pod-coffee craze!

Let me explain. My dislike for the sector is purely based on the average consumer’s concern. Why should I pay convenience-store coffee prices for something I brew at home? That said, other people find value in quickly and perfectly produced joe, and are willing to pay for it.

The other selling point for Keurig-like devices is that they’re perfect for businesses of all sizes. For instance, having a Keurig in the lobby is a must: you don’t want to force your guests and clients into making coffee the old-fashioned way.

Beyond that, KDP stock offers incredible synergies. Between Keurig’s main business and Dr Pepper’s library of attractive brands, the newly-combined company has long-term, upside potential.

Right now, the markets don’t see it that way, which makes KDP a risky, but smart contrarian move.

Beverage Stocks to Buy: Primo Water (PRMW)

Beverage Stocks to Buy: Primo Water (PRMW)
Source: Shutterstock

With so many beverage stocks to buy, it’s difficult to distinguish among the competitors. This is especially the case for the underlying products. But in Primo Water’s (NASDAQ:PRMW) case, they simply went with the most obvious choice: pure, clean water.

Initially, this may not sound like a standout business plan. But Primo Water’s claim to fame is its meticulous focus on providing the purest water possible. Their website does an excellent job of comparing the cleanliness of their products versus popular water-filtration systems. Due to their marketing efforts, PRMW has converted several customers to either their bottled-water products or their subscription service.

The markets have also taken notice as well. Thanks to robust sales growth over the past few years, PRMW stock registered impressive performances. This year is no different, with shares up over 59% YTD.

Ideally, I’d like to see PRMW come down a little bit as I believe it’s overstretched. A 10% decline should come as no surprise, although if that happens, I’d consider acquiring a position.

Beverage Stocks to Buy: Cott (COT)

Chances are, if you’ve enjoyed a hot cup of joe, or a refreshing iced-tea brew at a restaurant or convenience store, you’ve already tasted Cott’s (NYSE:COT) delectably-crafted concoctions. That’s because under their S&D Coffee & Tea subsidiary, COT is the largest custom-coffee roaster and iced-tea blender for the U.S. food and drinks services industry.

Having said that, COT doesn’t really appear on any beverage stocks to buy list. In fact, you’re lucky to hear about the shares at all. Historical earnings performances have disappointed the Street badly, leading to the impression that management can’t turn the ship around.

COT stock has also suffered significant choppiness over the past several years. Since this January’s opening price, shares are down 8%. The company failed to help itself when it produced an earnings miss in the most recent Q2 report.

So yes, COT is a speculative affair. However, Cott’s recent sales trend indicates noteworthy momentum. If you have some gambling money, COT is worth a shot.

Beverage Stocks to Buy: Kirin (KNBWY)

Walk into any sushi bar, and you’ll more often than not encounter Kirin’s (OTCMKTS:KNBWY) beer selections. This isn’t a surprise, since with a market capitalization nearing $21 billion, Kirin is one of Japan’s largest companies. If you go to Japan, you’ll see their beer portfolio offered on vending machines, which is probably the best thing ever.

Excuse my digression. As an investment, I believe Kirin offers a viable, contrarian opportunity. For starters, KNBWY is trading at a discount, down around 7%. Against forward earnings, KNBWY trades at a 16-times multiple.

More importantly, I find the bearishness incongruent with current momentum. Kirin has suffered disappointing sales declines and performances over the past four years. But recent quarterly figures indicate a return to significant growth.

Also consider that Kirin is not just an alcohol play. The company features vast product portfolios both domestically in Japan, as well as internationally.

Beverage Stocks to Buy: Compañía Cervecerías Unidas (CCU)

Over the years, soft-drink producers have bemoaned changing consumer tastes in the U.S. Today, younger people prefer less-sugary beverages, forcing sector players to adapt. But the trend hasn’t caught on internationally. For instance, in Latin America, soft-drink sales remain robust, per the recent Coca-Cola earnings report.

This dynamic bodes well for Chilean beverage-maker Compañía Cervecerías Unidas (NYSE:CCU). One of South America’s largest producers soft drinks, mineral water, and wine, CCU levers significant brand advantages. Not only that, the company has generated significant sales momentum after suffering disappointing results in the past two years.

Currently, CCU stock is down more than 4% YTD, which I consider a possible buying opportunity. The biggest risk right now is technical in nature, as shares have gyrated wildly since summer of 2017. However, a carefully calculated gamble here could pay off down the road.

Beverage Stocks to Buy: Anheuser Busch Inbev (BUD)

A few months back, I discussed Anheuser Busch Inbev’s (NYSE:BUD) key alcoholic beverage, Bud Light. Suffice to say, I’m not a big fan of Bud Light, calling it an “abomination” to beer. In fact, I’m just going to take a page out of President Trump’s playbook and double-down on my opinion: I don’t care for regular Bud, either.

You might want to punch me in the face right now. But a good side to my dislike for all things Bud exists: millions of people agree with you, not me. As I stated in the last go-around, “Bud Light was the most popular domestic beer in terms of sales last year, and I’ll add by a country mile.”

I may not agree with other people’s tastes, and that’s totally fine. Where we can find consensus is that BUD isn’t likely to give up its dominance any time soon. That makes BUD stock a contrarian buy during this period of market weakness.

Beverage Stocks to Buy: Boston Beer (SAM)

From a beer brand that I can’t stand taste-wise, let’s move onto something a bit classier. Boston Beer (NYSE:SAM) is famous for its Samuel Adams lineup. From the classic offering to its seasonal brews, SAM always produces top-notch beer, and has the accolades to prove it.

But it’s not just beer-lovers who gravitate towards the company. Wall Street has its own obsession with SAM stock. After suffering sharp declines and weak performances in 2015 and 2016, SAM made an impressive recovery last year. It’s following that performance up this year with a 60% lift from the January opener.

Of course, most investors would prefer buying at a discount as opposed to buying into strength. At the same time, SAM stock is no fluke. The underlying company has better-than-industry-average profitability margins, and a zero-debt balance sheet. Moreover, Boston Beer demonstrated significant revenue growth in recent quarters.

I wouldn’t go all-in at these prices, as SAM stock is admittedly elevated. However, consider taking a modest position now, and add to it as shares naturally correct.

Beverage Stocks to Buy: Molson Coors Brewing (TAP)

If you’re looking for a speculative alcoholic-beverage maker, Molson Coors Brewing (NYSE:TAP) might just fit the bill. TAP stock has taken a beating this year, shedding more than 16% YTD.

But it’s not just this year’s performance that has upset investors. Since rising above $111 in mid-October of 2016, TAP stock has consistently charted a bearish trend channel. From its zenith, Molson shares are approaching losses of 40%.

On the flipside, TAP stock has gained over 15% since May 3 of this year. Is a comeback on the horizon? While it’s a risky play, I respect that management has chipped away at their debt. Furthermore, the company levers above-average profitability margins, and three-year earnings and sales growth that’s outstanding relative to its industry.

I’d take a good look at TAP stock before declaring it tapped out.

Beverage Stocks to Buy: Ambev (ABEV)

Beverage Stocks to Buy: Ambev (ABEV)
Source: Shutterstock

Ambev (NYSE:ABEV) is perhaps the riskiest among major beverage stocks to buy. ABEV stock has performed horribly this year, down 29% against this January’s opening price. Much of the pain occurred during the spring season, with shares experiencing a brief rally in July. But now, we’re back to square one.

Due to the present volatility, and the fact that the markets hate this stock, I’m not recommending that you buy now. I fully expect ABEV to fall further. This current respite is more than likely temporary. I anticipate shares will drop to around $4, where it previously bottomed in early 2016.

But if ABEV gets that low, I understand the temptation to pull the trigger. Moreover, I might pull the trigger with you. Despite the ugliness in the markets, ABEV levers significant strengths, such as a robust balance sheet. Also, it has excellent profitability margins, and above-average revenue growth over the past three years.

In other words, Ambev is a solid company. It just needs to flush out the bearishness.

Beverage Stocks to Buy: Constellation Brands (STZ)

Constellation Brands (NYSE:STZ) distinguishes itself from other beverage stocks to buy as it’s not just an alcohol play. STZ owns a 9.9% stake in Canopy Growth (NYSE:CGC), which is a Canadian cannabis firm. Pull up a chart of Canopy’s share price and you’ll see that Constellation profited handsomely from the deal.

STZ stock, though, has suffered the opposite fate. Shares are down almost double digits as the company fights consumer-market challenges that have impacted the broader beverages sector. Worse yet, STZ appears overly stretched against prior years’ performances, indicating more pain to come.

However, I’m maintaining my bullishness towards STZ. While I’m not a fan of the volatility, I like the strong margins and outstanding three-year revenue growth rate. In fact, it’s one of the few alcoholic-beverage makers that have consecutively increased annual sales since 2014.

Beverage Stocks to Buy: Diageo (DEO)

Last but certainly not least on our list of beverage stocks to buy is Diageo (NYSE:DEO). Up until last year, DEO was the world’s most-valuable liquor distiller. However, in early April 2017, China’s Kweichow Moutai assumed the throne.

That hasn’t tarnished Diageo’s reputation in any meaningful way. Purchasing DEO stock gives you exposure to the most recognized alcohol brands, including world-famous Johnnie Walker, Guinness and Ketel One. In other words, it would take something much more than mere financial metrics to truly dethrone Diageo.

Currently, though, the markets haven’t responded too well to DEO stock. Shares are down 3% for the year, but this figure also hides significant volatility that occurred over several months.

Still, I consider the market weakness an ideal time to consider buying Diageo shares. The company has near-industry leading profitability margins. Moreover, DEO is showing some much-needed momentum in terms of sales growth.

Like the other speculative alcohol names, DEO has its risks, but it’s also worth taking a gamble.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2018/08/21-beverage-stocks-to-buy-for-the-contrarian-minded/.

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