As market volatility continues to remain high, investors are selling immediately high-flying growth stocks, such as Open Table or Netflix, on any hint of bad news. This is expected as volatility equates to fear and when that happens investors are less willing to take on risk and more willing to expect a smaller return as a result. A popular option is US Bonds, but with the 2-year yielding less than .2%, that has people thinking twice and searching for other safe-havens. Perhaps beverage stocks are worth a look since people have to drink regardless of the economic times.
1. Coca-Cola (KO) is widely known for having if not the most valuable, among the most valuable, brand names globally. The stock looks compelling, trading at 13x price/earnings and a respectable 2.7% dividend yield. Moreover, its payout is under 35%, indicating a safe assumption that the dividend will continue to be raised.
This continues to be a very large holding of Berkshire Hathaway (BRK.A), which I described in this previous article, it currently looks cheap and I think it's a great safe-haven with a respectable yield that the long-term dividend holder can keep in their portfolio. It's a buy here at $70. Moreover, its international stock Coca-Cola Femsa (KOF), is worth a look as it is having much more growth. The stock is pricier at just under 23x price/earnings and a 2.1% yield at a 46% payout ratio, but it gives you some free global diversification into the growing Latin American market. I think that is a buy here at $93/share.
2. Pepsico (PEP) is also a very well-known company not only for its beverages, but for its snack food division which includes Doritos, Quaker Oatmeal, and Fritos. Its stock looks like a safe long-term dividend holding trading under 16x price/earnings and a very nice 3.3% dividend yield. Moreover, with a low 50% payout ratio, I'm fully confident that the dividend is not only secure, but will continue to be raised. It's a buy here at $60.
3. Dr Pepper Snapple Group (DPS) is reasonably priced trading at about 16x price/earnings and a 3.4% dividend yield. With its payout ratio at a low 45%, it's a buy here at $37.75 for the long-term dividend investor.
4. Hansen Natural (HANS) and its popular Monster energy drink has been an absolute money maker that has allowed the company revenue growth in excess of 20% annually the past ten years, more than double its big competitors Coca-Cola and Pepsico. Moreover, its balance sheet is virtually debt free with close to $8/share in net cash.
This great growth stock looks like a solid buy on the surface, but I can't pull the trigger as I see it being too expensive at the current share price. At 34x price/earnings, over 5x price/sales, and over 8x price/book, this company is priced for perfection. Moreover, with no dividend while its counterparts above are giving dividends well in excess of the average S&P 500 yield of 2.2%, I'd rather own more shares of those companies. A classic case of a fantastic company, but not such a great stock at these elevated levels.
Those are the beverage stocks catching my eye, while the one getting the most attention is the one I'd stay away from. If you want another snack food stock to diversify your Pepsico Investment, another large Berkshire Hathaway holding in Kraft Foods (KFT) looks compelling if it can drop a little in price. Trading at 20x price/earnings, 1.2x price/sales, and 3.3% dividend yield, it looks reasonably priced, but I like it with a 3.5% yield translating for me an entry point at $33/share.