High Quality Food And Beverage Stocks For Value Investors

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Includes: BRK.A, DPS-OLD, GIS, KO, KOF, MDLZ, MNST, PEP
by: Brian Gorban

In these tough economic times capital preservation is advantageous to capital appreciation. That means that stable industries are what investors should look to put their money into and the food/beverage stocks below definitely provide that. Obviously people have to eat and drink regardless of the economic environment and as world population continues to grow, this creates consistent growth. Moreover, as the BRIC (Brazil, Russia, India, and China) countries continue to develop, the approximately 3 billion people collectively in these countries will look to raise their standard of living, which includes more consumption. These food/beverage stocks are trading at not only favorable valuations for the value investor, but have consistent growth and superior management teams.

Coca-Cola (KO) is widely known for having among the most valuable brand names globally. The stock looks compelling, trading at 12.5x price/earnings, well over $7B in FCF this past year, and a respectable 2.8% 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). 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 nice buy here. As of Sept. 30, a respectable 56% of the shares were owned by institutions.

Moreover, its international stock Coca-Cola Femsa (KOF), is worth a look as it is experiencing much more growth. The stock is pricier at 22x price/earnings and a 2.2% yield at a 38% payout ratio, but it gives you some free global diversification into the growing Latin American market. It also has strong FCF of just over $1B, so I think it's a nice international holding at these levels. As of Sept. 30, a strong 68% of the company's shares were owned by institutions.

Kraft Foods (KFT), together with its subsidiaries, manufactures and markets packaged food products worldwide. This is a very well-run company that is reasonably priced at 19x price/earnings, 1.2x price/sales, and has a very nice 3.3% dividend yield, with a safe payout under 70%. This happens to be another large holding of BRK.A, with it owning 5.6% of the shares outstanding as of June 30. I think this is a safe long-term buy at these levels. As of Sept. 30, a strong 74% of shares were owned by institutions.

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 at 16x price/earnings and a very nice 3.3% dividend yield. Moreover, with a low 50% payout ratio and well over $5B in FCF this past year, I'm fully confident that the dividend is not only secure, but will continue to be raised. This is a good entry level to start a position. As of Sept. 30, a strong 68% of shares were owned by institutions.

Dr Pepper Snapple Group (DPS-OLD) is reasonably priced trading at 15x price/earnings, 1.3x price/sales with a nice 3.5% dividend yield. With its payout ratio at a low 46%, expect more dividend raises. As of Sept. 30, a very strong 91% of shares were owned by institutions. I like the stock at this price level.

General Mills (GIS) manufactures and markets branded consumer foods worldwide. This stock is reasonably priced at 15x price/earnings, 1.7x price/sales, and a very nice 3.1% secured dividend with its very low payout below 45%. As of Sept. 30, a strong 71% of shares were owned by institutions. I like the stock at this price level.

Hansen Natural (HANS) and its popular Monster energy drink has been an absolute money maker that has earned the company revenue growth in excess of 20% annually over 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 33x 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 solid payouts, 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. As of Sept. 30, a strong 73% of shares were owned by institutions.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.