The drumbeat of controversy surrounding diet soda is beating once again, and this time critics are louder than ever. Earlier this year a series of studies compared the health risks of diet soda to those of serious illegal drugs and now more shocking information is coming out.
What impact will this have on your money?
Diet Soda Danger!
As I sat to write this post, the local (Chicago) Fox News was beginning its 5pm show. I had the TV on for background noise and, in a strange twist of irony, one of the leading headlines for the nightly news was “Diet Soda Danger: why low calorie drinks may be harming your health.” I had to chuckle for a moment at the irony, the sheer hype, and fear mongering. But the truth is that when one of our stocks finds itself in the cross-hairs of bad press, as investors we have two choices.
1. Get defensive: A natural reaction many foolish (lowercase) investors have when bad press abounds is to be “defensive” and emotional. They lash out on message boards, insult people who disagree with them, and try to convince the world that the hype is untrue.
2. Get defensive: Your other option is to investigate, determine what’s real and what the risk is, and get defensive with your portfolio. Diversify, double down, or sell (if necessary) depending on what the actual long-term risks to your portfolio are.
In any business venture, being emotional costs you money; so I probably don’t need to tell you that number two is the right approach.
Here are the risks, and the right moves to make.
Diversification Rules
As I assess the hype surrounding the “dangers of diet soda,” I have to think that fast-growing Dr Pepper Snapple Group Inc. (NYSE:DPS) is the stock most likely to be at risk. This may seem a bit off given the popularity of Diet Coke, and yes Diet Coke is the number one diet soda in the world. Actually, just last year, Diet Coke overtook regular Pepsi as the second highest selling soda brand in the world–period. But, while The Coca-Cola Company (NYSE:KO) relies on Diet Coke for 15% of its revenues, 70% of its business comes from non-carbonated beverages.
It may surprise you that many “healthy” drink brands like Vitamin Water, Smart Water, and Odwalla are now a part of the The Coca-Cola Company (NYSE:KO) family. The Coca-Cola Company (NYSE:KO) has acquired them in recent years, in preparation for a more health-conscious consumer environment. So while people may stop drinking Diet Coke, they won’t stop buying drinks altogether.
Every dollar that Vitamin Water steals away from Diet Coke is still a dollar that The Coca-Cola Company (NYSE:KO) earns. They own a brand in every single beverage line at this point, from fruit juice, to cola, to water.
Now contrast that with Dr Pepper Snapple Group Inc. (NYSE:DPS). This fast-growing soda maker relies on carbonated beverages for a whopping 75% of its business and has seen strong growth in recent years due to heavy promotion of its Diet Dr Pepper Snapple Group Inc. (NYSE:DPS) brand.
While I do believe that Diet Dr Pepper Snapple Group Inc. (NYSE:DPS) tastes “more like real Dr. Pepper” (so good), I prefer Coke as an investment right now. The advantage is simply in Coke’s ability to win by giving the “illusion of choice,” no matter which direction market trends go.
