Sipping on the beverage sector

Everyone drinks non-alcoholic beverages, and investors are thirsty for information about the companies that sell them. The non-alcoholic beverages industry includes makers, bottlers, and distributers of sodas, bottled water, juices, energy drinks, and bottled coffees and teas.

Diversification is one of the principal reasons for investors to consider adding beverage stocks to their portfolios. Many beverage companies own several brands and are involved in growing global businesses.

Companies like Coca-Cola and Pepsi are dominant in the industry, but that’s another interesting factor in selecting stocks: dominance versus innovation. Some of the biggest companies have stocks that languish, while some small innovative companies have stocks that soar. When to get into or out of these stocks is a major decision.

Demand for non-alcoholic beverages is driven by consumer tastes and demographics. The profitability of individual companies depends on effective marketing. Therefore, large companies benefit from economies of scale in production and distribution. Small companies benefit by producing new products, catering to local tastes, and/or selling at lower prices, since they have lower overhead costs.

In order to identify the opportunities in this industry we need to balance positive demand trends with the fact that winning companies must develop exciting new products, while also driving profitable growth in their core brands.The Non-alcoholic Beverage industry group is in an uptrend.

CCE (Coca-Cola Enterprises, Inc.) produces, distributes, and markets non-alcoholic beverages in Europe. In addition to sodas, its products include energy drinks, still and sparkling waters, juices and sports drinks. The company primarily offers its products under Coca-Cola, Fanta, Capri Sun, Schweppes, and Sprite brands. SmarTrend identified the Uptrend for CCE on February 25, 2010 at $17.45, so with the stock trading at $29.37 during mid-May, the return to date has been 68%.

Through its subsidiaries, HANS (Hansen Natural Corp.) develops, markets, sells, and distributes beverages in the United States and internationally. The company principally offers natural sodas, fruit and juice drinks, energy drinks and non-carbonated iced teas.

HANS is in an Uptrend called by SmarTrend on August 6, 2010 at $44.12. With a price of $68.71 in mid-May, this stock has increased 55% since SmarTrend’s Uptrend Alert was issued.

DPS (Dr Pepper Snapple Group, Inc., see chart) operates as a brand owner, manufacturer, and distributor of non-alcoholic beverages in the U.S., Canada, Mexico and the Caribbean. It offers flavoured carbonated and non-carbonated beverages, including products under brands such as Dr Pepper, Sunkist soda, 7UP and A&W. DPS stock was trading at $42.10 in mid-May, an increase of 16% since SmarTrend issued an alert on its Uptrend on February 28, 2011 at $36.26.

PEP (PepsiCo Inc.) is a global food, snack and beverage company that manufactures (or uses contract manufacturers), markets and sells non-alcoholic carbonated and non-carbonated beverages, as well as a variety of snacks and foods. PEP is in an Uptrend called on April 4, 2011 at $64.99. Priced at $71.57 in mid-May, this stock has increased 10% in the month since SmarTrend issued the alert.

Do-it-yourself carbonation is starting to catch on, and a Tel Aviv, Israel-based company took its shares public on NASDAQ last year. SODA (SodaStream International Ltd.) manufactures and markets home carbonation systems. The company markets soda makers, CO2 cylinders, carbonating bottles and syrup flavours worldwide. On April 14, 2011, SmarTrend identified an Uptrend in its stock at $45.15. Trading in mid-May at $54.29, the value of this stock increased 20%.

Though demand is on the rise for most non-alcoholic beverage types, players face significant challenges in managing their cost structures. In addition to high marketing costs, the prices of input commodities are rising. Corn prices jumped 52% in 2010 and were up another 10% through the first quarter of 2011. Corn is a significant input in non-alcoholic beverages, and prices for other critical commodities, such as sugar and aluminum, are also rising.