When investors think of profitable beverage stocks, they generally gravitate towards Coca-Cola (NYSE:KO) and PepsiCo (NASDAQ:PEP), the world’s two largest makers of non-alcoholic beverages.
There’s nothing wrong with that strategy. However, as we head into summer and the temperatures heat up, other brands are worth considering.
InvestorPlace’s Alex Sirois discussed the best beverage stocks to buy in July 2022. My colleague stated that the global beverage industry was valued at $1.8 trillion. While that’s less valuable than Apple (NASDAQ:AAPL), it’s still a big industry.
To make the cut, the names must be a part of the First Trust Nasdaq Food & Beverage ETF (NASDAQ:FTXG), a collection of 30 U.S. stocks operating in the food and beverage industry.
Two of my selections were on Sirois’ list from last year. One has done well over the past year, and one hasn’t. The third is Coke-related, proving you can’t escape Big Red.
Brown-Forman (BF-B)
Of the three stocks on my list, Brown-Forman (NYSE:BF-B) is the only company focused on alcoholic beverages. Although best known for Jack Daniels whiskey, it makes many other alcoholic spirits such as tequila, rum, and gin.
It recently sold its Finlandia vodka brand for $220 million to Coca-Cola HBC, a European bottler of Coca-Cola that’s based in Athens. Brown-Forman acquired the vodka brand in phases between 2000 and 2004. While it’s owned Finlandia outright for nearly two decades, it focuses on premium and ultra-premium brands.
In fiscal 2023, it paid $727 million for Diplomatico Rum, a year after Brown-Forman acquired Gin Mare for $468 million.
Since 2019, the company has grown its annual revenue by $1.1 billion, to $5.37 billion in 2023 (April year-end), with an operating income of $1.13 billion. Although down from 2019, its return on invested capital remains high at 15.3%.
It has a rock-solid balance sheet, with long-term debt just 8% of its market cap. Moreover, Brown-Forman has increased its annual dividend for 39 consecutive years.
Trading at 7.59x sales, its stock is cheaper than it’s been since 2016.
Monster Beverage (MNST)
Monster Beverage (NASDAQ:MNST) is the top-performing S&P 500 stock of the past 3o years, up 213,088% over the three decades through August 2022. If you’re worried the energy drink maker got passed over since that achievement: it didn’t. MNST stock is up nearly 19%.
On July 3, Monster announced it was buying Bang Energy’s assets from Vital Pharmaceuticals out of bankruptcy for $362 million. Bang Energy filed for bankruptcy protection in October 2022 after Monster sued and won against its smaller competitor, alleging in court that it falsely claimed its drinks contained “super creatine.” Bang was forced to pay Monster $293 million.
In February 2022, the company acquired CANarchy, a craft beer business, for $329.5 million. The move got it into the alcoholic beverage sector. While the margins are lower than energy drinks, they provide the company with greater diversification and downside protection. In Q1 2023, its Alcohol Brands segment accounted for 2.7% of its $1.70 billion overall revenue. Give it a decade, and it may generate $1 billion or more in revenue.
Fifteen out of 26 analysts rate it Overweight or an outright Buy with a median target price of $63.00.
If you hold for the long haul, I don’t see how you can lose with this beverage industry leader.
Coca-Cola Consolidated (COKE)
Coca-Cola Consolidated (NASDAQ:COKE) was founded by J.B. Harrison in 1902. Today, it is run by J. Frank Harrison III, J.B.’s great-grandson. The CEO controls 71% of the company’s voting power, America’s largest Coca-Cola Bottler with operations in 14 states and the District of Columbia.
Coca-Cola owns 29.7% of the company but only holds 8.7% of the voting power. It is very much a controlled company. And that’s a good thing. No private equity firms buying it up without the family’s consent. Given that its purpose is to “honor God in all we do, to serve others, to pursue excellence and to grow profitably,” I highly doubt you have to worry about a short-term viewpoint by management.
In the latest quarter, the Charlotte-based company had net sales of $1.57 billion, 11.9% higher than a year earlier, with an operating income of $206.1 million, 57.3% higher than Q1 2022.
“We achieved extraordinary profit growth this quarter through solid volume performance of our Sparkling brands and strong gross margin expansion while managing through this high cost, inflationary environment,” said Dave Katz, President and Chief Operating Officer.
COKE stock has been on a big run since it bottomed in September 2022. Up 58% since hitting a 52-week low of $405.03, it still only trades at 13.2x earnings, the lowest multiple in the past decade.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
