Coffee is one of the most widely consumed beverages globally, however, not many investors are bullish on coffee stocks right now as AI seems to be getting all the attention. The coffee market is growing and estimates by Mordor Intelligence valued it at $132.13 billion in 2024. The market is expected to grow to $166.39 billion by 2029, at a compound annual growth rate of 4.72% over the forecast period.
Consumers are currently worried since coffee sellers have predicted that the already high prices will spike even more in the near future. Supply disruptions from Vietnam to Brazil have resulted in high prices for the Arabica and Robusta beans. The reasons behind the surge in prices are diverse. While weather conditions in major coffee bean exporting nations including Brazil and Vietnam have impacted the size and quality of the arabica beans, rising demand in markets such as China also tightened the supply. Considering the fact that Arabica beans are preferred by coffee giants and Robusta beans are best for instant coffee, there is no sense of relief for the end consumers who are paying for their daily dose of coffee.
Prevailing Trends in the Market
As reported by the World Bank, the beverage price index hit a 13-year high in February as a result of the surging prices of Robusta coffee and cocoa. Coffee Arabica and Coffee Robusta prices hit $4.61 and $3.38 per kilogram, respectively. The reaction of the industry to these prices has been diverse. While some suppliers have warned consumers of further price hikes for their products, other coffee chains are finding store closures convenient. The competition for supplies continues to rise as the demand for coffee in non-traditional markets is expanding. While the dynamics of the market have shifted to more online orders or drive-throughs, some critics mention coffee brands have let go of the idea of offering premium customer service in stores.
The real question revolves around what the coffee industry holds for consumers in the future. While many believe that the price hikes will not be so severe, the underlying challenge penetrating coffee-producing regions is climate change and not just bad weather. Although pests and diseases due to heavy rainfall impacted the coffee yield in Brazil, just like the high temperature in Vietnam, the issue is more dense. Considering the fact that such regions can become unusable by 2050 if the circumstances persist, the coffee industry remains under serious threat.
The coffee market may be under pressure but it goes without saying that caffeine is a staple in today’s high-paced world. Whatever challenges persist, products from top coffee companies will continue to be on the shelves of retail stores and in the kitchen cabinets of consumers. Coffee stocks might even be ideal for recession-proofing your portfolio. With that, let’s dive into the 7 best coffee stocks to buy now.
7 Best Coffee Stocks To Buy Now
Our Methodology:
In order to compile a list of the 7 best coffee stocks to buy now, we first sifted through ETFs and online rankings to gather a preliminary list of 20 coffee stocks. We then selected the top 7 stocks that had the highest number of hedge fund holders as of March 31. The 7 best coffee stocks to buy now are arranged in ascending order of their number of hedge fund holders, as of the first quarter of 2024. We have also included analysts’ average upside potential for the stocks in our list.
Why are we interested in the stocks that hedge funds pile into? The reason is simple, our research has shown that we can outperform the market by imitating the top stock picks of best hedge funds. Our quarterly newsletter’s strategy picks 14 small and large-caps every quarter and it has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
7 Best Coffee Stocks To Buy Now
7. Nestlé S.A. (OTC:NSRGY)
Number of Hedge Fund Holders: N/A
Average Upside Potential as of July 31: 27.4%
Nestlé S.A. (OTC:NSRGY) is a food and beverage company that sells products in 188 countries across the world. With 150 years of expertise in heath, wellness, and nutrition, Nestlé has grown from being a European company to a reputable global firm operating over 340 factories in 77 countries. The company has a leading portfolio of over 2000 brands across several categories including coffee, cereals, water, dairy, drinks, confectionary, and many more. Nestlé serves as the world’s largest coffee buyer and owns some of the most iconic coffee brands including Nescafé and Nespresso.
Nestlé S.A.’s (OTC:NSRGY) coffee business continues to thrive in the extensive global market it has captured. Nescafé dominates the instant coffee market. Over 6,100 cups of Nescafé instant coffee are consumed every second. CNBC reveals that although the instant coffee market is not a large segment in the US, one in seven cups of coffee consumed worldwide is Nescafé, an iconic brand selling in 180 countries and has 25 factories making it globally. Simultaneously, Nespresso alone is an international brand having a network of 802 boutiques in 515 cities and a solid presence in 81 countries. While the Nespresso capsules are produced in Switzerland, they are exported across the globe. Over the past 5 years, the company’s soluble coffee and coffee systems revenue has grown at a compound annual growth rate of 12.3%.
The company’s powdered and liquid beverages category is the largest and includes the coffee, cocoa, and malt beverage businesses. Coffee remains a promising domain for the company as the category witnessed high single-digit growth in 2023 with positive sales developments across brands. The powdered and liquid beverages category continued its dominance and recorded CHF 24.8 billion ($29 billion) in sales while soluble coffee and coffee systems accounted for 67.2% of the total sales. Overall, the company had CHF 93.0 billion ($109 billion) in group sales with organic growth of 7.2%. Even in the half-year results for 2024 reported by the company, coffee served as the biggest organic growth contributor with mid-single-digit growth. The ability to capture markets for Nestlé remains strong as well since it was successful in introducing coffee to 10 million Indian households in 2023 (a country where tea is traditionally preferred).
Nestlé S.A. (OTC:NSRGY) has also been witnessing increasing free cash flow generation. Although the existing consumer environment is challenging, the company continues to drive growth through its billion-dollar brands including Nescafé, KitKat, Maggi, Purine One, and Nestlé Carnation. As of March 31, Gardner Russo & Gardner is the largest shareholder in the company with a stake worth $770 million. Analysts are also bullish and see an upside of 27.4% from current levels.
6. Luckin Coffee Inc. (OTC:LKNCY)
Number of Hedge Fund Holders: N/A
Average Upside Potential as of July 31: 63%
Luckin Coffee Inc. (OTC:LKNCY) is a Chinese coffee company headquartered in Xiamen. The company was founded in 2017 and currently operates the largest number of stores in China. Luckin Coffee Inc. (OTC:LKNCY) engages in the roasting and grinding of high-quality Arabica coffee beans. Coffee offered by the company is chosen from over 180 blending formulas. This coffee is tested and blended by World Barista Championship (WBC) champions who come from multiple countries including Italy, China, Poland, Japan, and Australia.
The company’s competitive edge is evident from the fact that it has even surpassed the global coffee giant Starbucks in the local market. Luckin Coffee now dominates the Chinese coffee market by being the first chain coffee brand in the country to have 10,000 stores after the opening of its Zhongshan Road flagship store in June 2023. The company is capturing a broader market of Chinese customers who prefer affordable coffee options and heavy discounts as compared to Starbucks. Other than the low price, the company differs from low-end Chinese brands on the basis of quality.
Luckin Coffee Inc.’s (OTC:LKNCY) innovative business model based on a mix of online and offline has emerged as its strength. The company engages with customers remotely through a mobile app and other third-party platforms while simultaneously operating stores to have better delivery coverage. Furthermore, Luckin has unlocked rapid market growth by employing a combination of self-operated stores and franchises as compared to Starbucks, which owns its stores. The company had 16,218 stores in China by the end of 2023 almost doubling the store count of 2022. Luckin Coffee Inc. (OTC:LKNCY) also debuted in Singapore for the first time in March 2023.
The company remains resilient for effectively rebuilding its business after initially going public in 2019. The Chinese coffee company encountered a major setback in 2020 when its earnings were reported to be fabricated resulting in a $180 million fine by the US Securities and Exchange Commission. However, the company has managed to grow its revenue by 69.09% over the last 5 years. For the first quarter of 2024, the firm launched 22 new products and added 2,342 new stores. It recorded a historic high in cumulative transacting customers through the expansion of its stores. However, the profitability slightly declined as a result of seasonality and intense competition in the Chinese coffee market. The company plans to increase stores in high-tier cities while targeting low-tier cities through its partnership model.
While the formerly tea-drinking Chinese market has witnessed strong coffee consumption over the recent year, especially among the younger generation, the company is poised to grow. A unique business model, a market-leading position, product innovation, and robust revenue growth are other factors that point to the company’s attractiveness. Based on ratings and price targets from 4 analysts, Luckin Coffee (OTC:LKNCY) has a consensus Buy rating and its average price target of 225.15 yuan ($31.45) implies an upside of 63% from current levels.
5. BRC Inc. (NYSE:BRCC)
Number of Hedge Fund Holders: 10
Average Upside Potential as of July 31: 26.70%
BRC Inc. (NYSE:BRCC), the Black Rifle Coffee Company, is an American coffee business which was founded by former U.S. Army Green Beret Evan Hafer in 2014. The Veteran-founded and operated company is based in Salt Lake City, Utah. The company imports coffee beans directly from Colombia and Brazil to blend and roast exclusive coffee roasts for consumers in America. Additionally, the company offers apparel, accessories, and gear such as mugs, cups, glasses, and tumblers.
The mission-driven premium coffee company is a strong disruptor that strives on an innovative brand strategy that is unique as compared to big names in the coffee industry. The company’s sales are largely catalyzed by the extensive reach of popular retail stores such as 7-11, Walmart, Albertsons, and Giant. The company recently unlocked another major achievement by announcing a strategic partnership with Keurig Dr Pepper for the manufacturing and licensing of its single-serve pods which will foster growth across its current portfolio. With a patriotic mission of supporting Veterans, active-duty military, and first responders, the coffee company has a loyal consumer base which strengthens its business. As a fast-growing beverage brand, the Black Rifle Coffee Club (with 209,000 active subscribers) also serves as an accelerator.
The company’s wholesale business growth and emphasis on keeping operational expenses low have led to a strong financial performance over the recent fiscal quarter. The net revenue increased 18% year-over-year in the first quarter to $98.4 million. With the adjusted EBITDA hitting $14.1 million, the company witnessed record profitability. Analysts hold a consensus Buy rating on the stock and their 1-year median price target points to a 26.70% upside from the current stock price. Through a strong niche presence in a highly competitive coffee market and growth prospects, BRC Inc. (NYSE:BRCC) is another top coffee stock to buy. BRCC was held by 10 hedge funds at the close of Q1 2024. As of March 31, Engaged Capital is the dominant shareholder in the company with a position worth $55 million.
4. Restaurant Brands International, Inc. (NYSE:QSR)
Number of Hedge Fund Holders: 22
Average Upside Potential as of July 31: 23.43%
Restaurant Brands International, Inc. (NYSE:QSR) is one of the largest quick-service restaurant companies globally. The company is the owner of popular quick-service restaurant brands including TIM HORTONS, BURGER KING, POPEYES, and FIREHOUSE SUBS. Coffee serves as the core to the widely known Tim Hortons which has been in operation since 1964, has over 5,800 restaurants, and covers over 15 markets. Other than premium coffee, the brand’s menu extends to hot and cold specialty drinks, specialty teas, fruit smoothies, fresh baked goods, and prepared foods.
Restaurant Brands International, Inc. (NYSE:QSR) is a growth company that has managed to build some of the most iconic brands worldwide while offering a strong track record of system-wide sales growth. With over 30,000 restaurants in more than 120 countries and territories, the company has over $40 billion in annual system-wide sales. It continues to accelerate its franchisee profitability through strong financial performance to drive reinvestment in restaurants as well as growth. The company closed the first quarter of 2024 with solid growth in system-wide sales which resulted in bottom-line growth for franchisees and the company. Additionally, the future growth outlook for the company for 2028 points to at least $60 billion in system-wide sales.
The company’s coffee segment Tim Hortons is a restaurant leader in Canada and is most famous for its brewed coffee and has over 70% market share. Breakfast, sandwiches, and wraps from the brand have over 60% market share while baked goods account for more than 65% market share. Other than the strong regional market share of its coffee brand, Restaurant Brands International, Inc. (NYSE:QSR) has an extensive runway for its global restaurant expansion. The company is all set to benefit from China, one of the fastest-growing coffee markets. In July, Restaurant Brands International, Inc. (NYSE:QSR) announced a co-investment of up to $50 million of capital alongside Cartesian Capital in Tims China, the parent company of the exclusive master franchisee of Tim Hortons coffee shops in China, Hong Kong, and Macau. The emerging local coffee champion Tims China aims to open over 2,750 stores by 2026.
Based on the company’s ability to translate its value proposition into robust profitability and further grow that profitability through global expansion, it serves as a promising coffee stock to invest in. As of March 31, Pershing Square is the largest shareholder in the company with a stake worth $1.85 billion. Overall, the stock was part of 22 investors’ portfolios.
3. Dutch Bros (NYSE:BROS)
Number of Hedge Fund Holders: 33
Average Upside Potential as of July 31: 11.02%
Dutch Bros (NYSE:BROS) came into being in 1992 as a pushcart when the founders Dane and Travis Boersma decided to sell coffee in downtown Grants Pass, Oregon. The brothers came up with the idea while their family’s dairy business was struggling. The company grew over the years with the first franchise opening in Oregon in 2000. By 2021, the coffee company had extended to Texas and Oklahoma. Currently, Dutch Bros is an operator and franchisor of drive-thru shops that serve beverages. Dutch Bros has coffee classics, seasonal drinks, shakes, smoothies, and snacks among others to offer to its customers.
Although Dutch Bros (NYSE:BROS) doesn’t have a market share as compared to larger coffee chains, what deems the company attractive is its exemplary growth story. The company expanded from a double-head espresso machine and a pushcart to 876 locations across 17 states. The firm ranks among some of the fastest-growing brands in the quick-service American beverage industry by location count. Dutch Bros (NYSE:BROS) recently witnessed the 11th consecutive quarter of 30 or more new shop openings and carried 2023’s momentum to 2024 by recording a 39% year-over-year growth during the first quarter. Highlights of the first quarter performance include two strong new product launches and strong system same shop sales growth. A record 45 new shop openings across 14 states during the quarter are a proof of the consistency in the company’s growth.
The company also believes that they are more than the products they have to serve. The sense of community engagement boasted by the firm fosters loyalty among its customers. The company gives back to the community through fundraisers, grants, and donations. The strong brand image is a reflection of the philanthropic and inclusive attempts made by the firm to achieve its vision of ultimately making a massive difference.
Therefore, Dutch Bros (NYSE:BROS) is a top coffee stock with a rapid expansion pattern to offer to investors which has translated into strong revenue growth for the company. Over the past 3 years, the firm has grown its revenue by 43.83%. The community-driven approach further amplifies the chances for more business and profitability.
Dutch Bros (NYSE:BROS) was held by 33 hedge funds at the close of Q1 2024 and Citadel Investment Group was the largest shareholder in the company with a stake worth $159 million.
2. Keurig Dr. Pepper Inc. (NASDAQ:KDP)
Number of Hedge Fund Holders: 48
Average Upside Potential as of July 31: 5.50%
Keurig Dr. Pepper Inc. (NASDAQ:KDP) serves as a leading beverage company in North America. The company has a portfolio of over 125 owned, licensed, and partner brands. The company offers ready-to-drink beverages catering to diverse tastes including carbonated soft drinks, tea, still or sparkling water, juice, and non-alcoholic mixers. In the ready-to-brew category, specialty coffee and other specialty beverages in K-Cup pods are offered. In addition, traditional whole bean and ground coffee in bags, fractional packages, and cans are available for consumers. Simultaneously, consumers can enjoy ready-to-eat products from Keurig Dr. Pepper.
A consumer-centric innovation model is what has helped Keurig Dr. Pepper effectively capture the market of 45 million North American coffee consumers who use Keurig brewers. The company is known for transforming the way consumers brewed coffee through the introduction of K-Cup pod single serve coffee system. The experience that it has to offer to its consumers just doesn’t end here. Recently in March, Keurig has come up with another evolutionary experience by announcing the upcoming K-Rounds plastic-free pods which will be working in the new Keurig Alta system enabling consumers to make hot and cold barista-style beverages without any complex brewing techniques.
The above point of differentiation has brought financial stability for Keurig Dr. Pepper which recently reported strong results for the second quarter through solid EPS growth and growing net sales. Earnings came in at $0.38 per share and revenue inched up 3.5% year over year to $3.92 billion. The company witnessed double-digit growth in the International segment and robust performance in U.S. Refreshment Beverages. In the US coffee segment, although the net sales decreased by 2.1%, brewer shipments for the twelve months ending June 30, 2024 experienced growth which still proves the market share momentum of the firm.
The company’s ability to penetrate a wider coffee consumer base by challenging itself to reimagine what the brand could be makes it quite special. Apart from the quality and choice that Keurig has to offer, the firm has grown impressively thanks to a diversified beverage portfolio. Over the past five years, Keurig Dr. Pepper Inc. (NASDAQ:KDP) has grown its revenue by 6.7% and net income even more impressively by 17.8%. The stock was part of 48 investors’ portfolios at the close of the first quarter of 2024 and Citadel Investment Group was the top shareholder with a stake worth $277 million.
1. Starbucks Corporation (NASDAQ:SBUX)
Number of Hedge Fund Holders: 69
Average Upside Potential as of July 31: 12.02%
Starbucks Corporation (NASDAQ:SBUX) is a popular American chain of coffee houses. The coffee giant started off from a single store in Seattle’s Pike Place Market in 1971 and currently serves as the premier roaster and retailer of specialty coffee globally. With coverage in more than 80 markets around the world, Starbucks offers a wide range of products including coffee, handcrafted beverages, fresh food, and consumer products. Its brand portfolio includes Starbucks Coffee, Teavana, and Ethos Water.
With a name that needs no introduction, Starbucks Corporation (NASDAQ:SBUX) is an already dominant player in the global coffee market and the market share leader in the United States. The company has unlocked an extensive brand reputation for itself by effortlessly delivering a personalized experience in over 36,000 stores globally. The future for the firm’s growth remains bright as it plans to become truly global by expanding at an average of eight stores per day to a network of 55,000 stores by 2030. Alone in the large Chinese market where it has over 6,800 stores in 800 cities, the firm remains on track to run 9,000 stores by 2025. Starbucks Corporation (NASDAQ:SBUX) is also spreading across fast-growing markets such as India, Southeast Asia, and Latin America.
The distinctive experience for customers remains a core strength for Starbucks. Complying with the modern-day needs for convenience, the firm has also shifted from being a public space to a business that thrives more on its mobile app and drive-thru orders. To enable an even better customer experience, the firm has been investing in more purpose-defined stores other than leveraging its tech capabilities of Deep Brew AI and machine learning. Starbucks Corporation (NASDAQ:SBUX) is profitable as it has been capable of growing its revenue by 8.86% and its net income by 39.09% over the last decade. The company’s Reinvention plan which was launched in September 2022 with the goal of accelerating its long-term growth has also produced results through fiscal 2023 with a rise in consolidated net revenues by 12% to a record $36 billion.
In short, Starbucks Corporation (NASDAQ:SBUX) falls among the top coffee stocks to buy now. The company has a lot to offer in terms of a global and resilient brand equity, robust store network, and endless growth opportunities as one of the largest coffee houses in the world. Despite the challenges in the macro environment such as economic volatility impacting customer traffic or lower occasional customers as faced during the recent quarter, the firm is poised to capture a larger market on a global level. The stock was held by 69 hedge funds at the end of the first quarter with stakes worth $2.68 billion. As of March 31, Fisher Asset Management is the largest shareholder in the company with a stake worth $1.06 billion. Analysts are also bullish and see an upside of 12.02%% from current levels.
Diamond Hill Select Strategy stated the following regarding Starbucks Corporation (NASDAQ:SBUX) in its Q2 2024 investor letter:
“Starbucks Corporation (NASDAQ:SBUX) is the global leader in the coffee industry. Given its significant scale, we believe Starbucks can maintain its average ticket growth and drive decent traffic growth, which should allow for some margin expansion. While macroeconomic and competitive pressures remain intense in China, the country accounts for a minimal percentage of today’s earnings, and we believe the current valuation embeds little to no contribution from China over the long term, which we view as too cynical. As the share price declined recently amid near-term concerns surrounding store sales in North America and China, we capitalized on what we considered an attractive entry point.”
While we acknowledge the potential of coffee stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AMZN but that trades at less than 5 times its earnings, check out our report about the Cheapest AI Stock.
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