Don’t Overlook These Beverage Stocks in 2013: Dr Pepper Snapple Group Inc. (DPS), Starbucks Corporation (SBUX)

The Center for Science in the Public Interest (CSPI), a non-profit organization, has recently filed a petition with the FDA asking it to set a safe level for added sugar in beverages. If implemented, it will have a significant impact on the beverage industry. But I see two reasons why this shouldn’t be on the table very soon. One – The American Beverage Association (ABA) will again fight this one out like they have in the past. Secondly, for two decades soft drinks have held the title of the single greatest source of added sugar in the American diet, but now it has lost the belt to the food industry.

Whatever is the case, the immediate future of the beverage industry looks safe from the outcomes. In this article, I have picked three beverage stocks that offer good long potential this year.

PepsiCo, Inc. (NYSE:PEP)

The impact of the 17% rise in its earnings was pretty clear on PepsiCo’s stock price. With the declaration of 4Q12 results the company’s stock jumped by ~4%. It also announced guidance for 2013, in which it expects revenue growth of 7% year-over-year and a rise in organic sales by mid-single digits. Historically, the company has been a consistent performer, and its guidance is in accordance with the recent cost cutting initiatives. 2012 began with the implementation of an additional program to improve PepsiCo’s productivity. The combined productivity plan is expected to generate ~$1 billion of savings in each of the next three years. Last year, this plan was successful in achieving its yearly target and it is expected that the same success shall be repeated in 2013 as well. The program includes leveraging new technologies across businesses, simplifying organizational structure, which includes lay-offs and uniting manufacturing, warehousing, and sales facilities.

Investor’s Returns

2013 will also be in focus because of the recently authorized repurchase plan and the increase in the annualized dividend. PepsiCo has initiated a new share repurchase program of $10 billion to be executed in the next three years. Along with this, the company has also announced a 5.6% increase in the annual dividend effective June 2013. Last year, PepsiCo repaid its investors around $6.5 billion in the form of buybacks and dividend payments and expects to return ~$6.4 billion in 2013 too. This shows the inclination of the company to reward its investors. The company’s diversified product line is beneficial for its reach, but at the same time the company is heavily exposed to currency fluctuation. The stock’s future seems strong because of its robust product line, well-planned productivity program, and the announcements regarding repayment to the investors. I am bullish about the stock, hence I’ll rate it a Buy.

Dr Pepper Snapple Group Inc. (NYSE:DPS)

After the declaration of 4Q12 and full year 2012 results, investor disappointment was evident from the fall in Dr Pepper’s share price. Dr Pepper reported a rise in revenue by ~2%, but a decline in overall sales volume was seen. Additionally, a modest guidance for 2013 added fuel to the fire. But I feel that the decline in price has created a good entry point, because the company has a strong product line and the new variants should be successful in the future.