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Summary

  • Monster Beverage Corp. is a soft-drink company which can energize a portfolio.
  • I felt compelled to sell out of my Kodiak stake for Monster, because I felt Kodiak's upside was capped due to its buyout offer from Whiting Petroleum.
  • I'm buying Monster on a technical decline, but I believe the upshot is about to start.

I recently sold Kodiak Oil & Gas Corp. (NYSE:KOG) from my growth portfolio, because it caught a bid from Whiting Petroleum (NYSE:WLL) and I wanted to add shares of Monster Beverage Corp. (NASDAQ:MNST) to the portfolio. Monster, through its subsidiaries, develops, markets, sells, and distributes beverages such as ready-to-drink iced teas, lemonades, single-serve juices, juice cocktails, and fruit beverage. On May 8, 2014, Monster reported first-quarter earnings of $0.55 per share, which beat the consensus of analysts' estimates by $0.06. In the past year, the company's stock is up 3.25% and is losing to the S&P 500 (SPY), which has gained 17.23% in the same time frame. I initiated my position in Monster on July 22, 2014.

I sold my shares in Kodiak because I felt the upside to the stock was capped and that no white knight will come to the rescue. Kodiak is an independent energy company focused on the exploration, exploitation, acquisition, and production of crude oil and natural gas in the United States. On May 1, 2014, the company reported first-quarter earnings of $.011 per share, which missed the consensus of analysts' estimates by $0.07. In the past year, the company's stock is up 75% and is beating the S&P 500, which has gained 17.23% in the same time frame. With all this in mind, I'd like to take a moment to evaluate both stocks on a fundamental, financial, and technical basis to show why I swapped out of one for the other.

Kodiak Oil & Gas

The company currently trades at a trailing 12-month P/E ratio of 28.75, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future, as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 15.54 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (0.86), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is inexpensively priced, based on a 1-year EPS growth rate of 33.51%. The company has great near-term future earnings growth potential, with a projected EPS growth rate of 33.51%. In addition, the company has great long-term future earnings growth potential, with a projected EPS growth rate of 43.85%.

On a financial basis, the things I look for are the dividend payouts, return on assets, equity, and investment. The company does not sport a dividend to speak of, but is sporting return on assets, equity, and investment values of 4.2%, 12.9%, and 7.4%, respectively, which are all respectable values. In this particular instance, I skipped the dividend aspect of the financials because the stock is in my growth portfolio, and in the growth portfolio, a stock does not have to have a dividend.

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Looking first at the relative strength index chart [RSI] at the top, I see the stock near overbought territory, with a current value of 68.13. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line, with the divergence bars increasing in height, indicating bullish momentum. As for the stock price itself ($16.10), I'm looking at $16.38 to act as resistance and $15.47 to act as support, for a risk/reward ratio which plays out to be -3.91% to 1.74%.

Monster Beverage Corp.

The company currently trades at a trailing 12-month P/E ratio of 30.73, which is expensively priced, but I mainly like to purchase a stock based on where the company is going in the future, as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 22.31 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (1.84), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced, based on a 1-year EPS growth rate of 16.66%. The company has great near-term future earnings growth potential, with a projected EPS growth rate of 16.66%. In addition, the company has great long-term future earnings growth potential, with a projected EPS growth rate of 15.3%.

On a financial basis, the things I look for are the dividend payouts, return on assets, equity, and investment. The company does not sport a dividend to speak of, but is sporting return on assets, equity, and investment values of 29.7%, 44.4%, and 35%, respectively, which are all respectable values. In this particular instance, I will skip the dividend aspect of the financials because the stock is in my growth portfolio, and in the growth portfolio, a stock does not have to have a dividend.

The really high return on assets value (29.7%) is important, because it is a measure of how profitable the company is relative to its assets, telling us how efficient the management team is at using its assets to generate earnings [for comparison purposes, Monster has the highest ROA of all companies in the overall beverages-soft drinks industry, ahead of National Beverage Corp. (NASDAQ:FIZZ), which sports an ROA of 20.2%, and ahead of The Coca-Cola Company (NYSE:KO), which sports an ROA of 9.4%].

The really high return on equity value (44.4%) is an important financial metric for purposes of comparing the profitability, which is generated with the money shareholders have invested in the company, to that of other companies in the same industry [for comparison purposes, Monster has the second-highest ROE of all companies in the beverages-soft drinks industry, behind National Beverage Corp., which sports an ROE of 49.4%, and ahead of Coca-Cola Enterprises Inc. (NYSE:CCE), which sports an ROE of 33.4%].

The really high return on investment value (35%) is an important financial metric, because it evaluates the efficiency of an investment that a company makes, and if an investment doesn't have a positive ROI, then the investment should not be made [for comparison purposes, Monster has the second-highest ROI of all companies in the beverages-soft drinks industry, behind National Beverage Corp., which sports an ROI of 39%, and ahead of Dr Pepper Snapple Group, Inc. (NYSE:DPS), which sports an ROI of 29.5%].

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock near oversold territory, with a current value of 37.52. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is below the red line, with the divergence bars flattening in height, indicating the bearish momentum may subside. As for the stock price itself ($65.45), I'm looking at the 200-day simple moving average (currently $66.18) to act as resistance and $63.12 to act as support, for a risk/reward ratio which plays out to be -3.56% to 1.12%.

Wrap Up

I sold Kodiak for a 10.98% gain or 13.51% on an annualized basis. Again, I only sold Kodiak because I felt the upside was capped and I didn't want to own Whiting Petroleum. In my dividend portfolio, I threw Pepsi (NYSE:PEP) out a couple of months ago, because I felt like declining sales in the beverage segment were going to impact the stock in the long run. I wanted to be in the beverage industry, but not through a slow-moving, carbonated beverage vehicle, hence the reason for jumping into Monster. Just this year alone, we saw Coca-Cola buy 16.68 million shares from Green Mountain for a cool $1.25 billion, next we saw Hormel (NYSE:HRL) announce that it was going to buy CytoSport, which makes Muscle Milk, for $450 million. When an acquirer chooses to buy a company out, it is obviously seeking growth potential. So speaking of growth potential, I was perusing through my growth screens recently and found Monster. On a standalone basis, I believe Monster to be fairly priced on 2015 earnings estimates and short-term earnings growth potential, while having phenomenal financial efficiency ratios. I don't know whether Monster is a potential takeout target or not, and it doesn't really matter to me if it is or isn't, because I like the fundamentals and financials of the individual story itself.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: A Monster Of A Growth Stock