Within the beverage industry, The Coca-Cola Company (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP) are undisputed worldwide leaders. As such, they offer compelling growth prospects for the long-term. Emerging as a new leader, energy drink company Monster Beverage Corp (NASDAQ:MNST) is also worth a closer look as it could become a global front runner in the years to come. In this article, I will analyze these stocks in order to decide if they are worthy long-term investments or not.
A worldwide giant
Even though the carbonated beverages market is declining in the U.S., many other markets should drive growth in the years to come, especially Brazil, Russia, India, and China as disposable income levels rise and several billion dollar investments are planned by the company in these countries. Results in these economies have been encouraging in the last few years and portray an encouraging growth outlook for the years to come.
Moreover, The Coca-Cola Company (NYSE:KO) has also widened its product portfolio to address the demand of non-carbonated drinks in some central economies through its Minute Maid, Simply, and Powerade brands, among many others around the globe.
Several cost reduction initiatives lift profitability projections even further. After a successful four-year productivity program that was completed in 2011, which resulted in annualized savings of over $500 million, in February 2012, “Coca-Cola launched a four-year productivity and reinvestment program which includes initiatives like optimization of global supply chain; improving effectiveness of global marketing and innovation; operating expense leverage; standardization of information systems and integration of CCE’s North America business. The program is expected to generate annualized savings of $550 to $600 million phased over a four-year period starting in 2012 through the end of 2015” according to Zacks Equity Research.
With a solid cash position, a strong worldwide brand portfolio, one of the widest moats and compelling long-term growth prospects estimated around 8%-9% annually for years to come, I’d recommend buying and holding this stock that, above all, trades at discount to the 45.7 industry average P/E, at only 22.5 times its earnings — a very reasonable valuation for a company that looks this good.
A strong competitor
One of the most famous rivalries in the business world and even between consumers has been, for years now, that of The Coca-Cola Company (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP). Just like its main competitor, PepsiCo, Inc. (NYSE:PEP) has an established and successful worldwide brand portfolio that provides it with a wide economic moat and steady cash flows, thus making it a good long-term investment, expected to deliver about 9% in EPS growth over the following five years. Trading at 21.5 times its earnings, I would consider buying this firm for my portfolio as well.
As North America’s largest — and the world’s second largest — food and beverage business, with a product offering that comprises brands like Pepsi, Mountain Dew, Gatorade, Tropicana, Lay’s, Cheetos, Doritos, and Quaker, apart from another 14, the firm is poised to deliver long-term growth. Its focus on marketing, advertising, and innovation should keep it profitable and growing like in the past. Furthermore, its record acquiring or creating brands and products that anticipate consumer trends is outstanding and should continue to be so.
