While the major firms such as Coca-Cola (NYSE: KO), PepsiCo (NYSE: PEP), and Diageo (NYSE: DEO) offer much for investors, the growth is just not there anymore.
The predicted growth rates for Coca-Cola, PepsiCo, and Diageo are all under 10%, according to the analyst community. While those stocks have a role in every portfolio as detailed in previous articles on this site, those looking for growth will have to consider niche beverages such as High Performance Beverages (OTC: TBEV) in the sports and energy drink sector, and KonaRed Corporation, (OTC: KRED) a health drink derived from the Hawaii coffee fruit.
The “Old Guard” of the Beverage Industry vs. New Upstarts
Coca-Cola and PepsiCo are global leaders in a wide range of beverages, ranging from sodas to juices to sports drinks. The products of Coca-Cola and PepsiCo are both served in more than 100 countries around the world.
The same is true for Diageo, the biggest maker of spirits. That is why high growth will not be coming in the future.
By contrast, High Performance Beverages is focused in the booming sports and energy drink sector.
This segment of the marketplace is growing. It is not for carbonated beverages. As The Wall Street Journal recently reported, sales of both regular sodas and diet sodas are declining. That is obviously why the growth prospects for Coca-Cola and PepsiCo are so anemic.
Any college student can see that from what is selling at the local bar or store.
What About a Combination Beverage Play
For drinks like High Performance Beverages, sales are estimated to reach $21 billion by 2017. A product of the Throwdown brand from impact sports such as mixed martial arts, High Performance Beverage will benefit from the synergies of that marketing. Its focus on hydration and allowing athletes to recover fills a critical niche in the huge sports beverage sector.
For investors, this niche investing for high growth can be coupled with the steady returns of Coca-Cola, PepsiCo, and Diageo, whose products are ubiquitous around the world in restaurants, bars, and other establishments.
For Coca-Cola, these include Minute Maid juices, Hi-C, and Coke items, among many, many others. It is the same with PepsiCo and its offerings such as Tropicana juices, Lipton tea, and Pepsi Cola selections, to name but a few.
From Diageo, just a sampling of its global brands includes Guinness beer, Captain Morgan’s Rum, and Ciroc vodka. All are positioned well to gain from consumer growth in emerging market nations such as China, India, and others around the world.
Income Investors Still Love The Tried and True
The dividend components of Coca-Cola, PepsiCo, and Diageo are also very alluring.
At present, the average dividend for a member of the Standard and Poor’s 500 Index is around 1.9The yield for Diageo is 2.86%. Coca-Cola has a dividend yield of 2.82%. It is 2.76% for PepsiCo. Each of these companies has a history of dividend increases, too.
For growth and value investors, these stocks do not offer stunning numbers. But for those investors who take cues from Warren Buffett, who emphasizes return-on-equity with a target of 20% or better, all are very appealing.
The return-on-equity for Diageo is 73.50%. It is 29.70% for PepsiCo. Coca-Cola has a return-on-equity of 20% (Buffett is a major shareholder).
The beverage industry offers stocks ranging from prominent blue chips like Coca-Cola and Diageo to promising small caps like High Performance Beverage.
Investors looking for growth should consider High Performance Beverages. It is filling a crucial void in a booming market with tremendous brand appeal in a thriving sport. For income, it is tough to beat Coca-Cola, PepsiCo, and Diageo.
Do you own any shares in the beverage industry?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.