Beverage Plays For A Thirsty World

By Aaron Levitt | July 21, 2010 AAA

As fears of a double dip recession and slowed global growth are beginning to really take shape in investor's minds, many are wondering what to do in order to keep their portfolios safe. As volatility has returned, many have begun trimming back exposure to risky emerging market assets such as the Vanguard Emerging Markets Stock ETF (NYSE:VWO) or individual countries like SPDR S&P Russia (NYSE:RBL). Traditionally safe sectors like utilities are once again becoming in vogue as dividend investing sees a revival. However, investors shouldn't be so quick to cast off their emerging market stocks. As one of the main catalysts for long term global growth, going cold turkey in your portfolio is not the best option. Investors can have the best of both worlds.
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Quenching a Thirst
Investors looking for a way to play emerging markets while sticking to safer sectors may want to look at the beverage manufacturers. As direct play on the rising incomes and growing middle classes of their respective nations, beverage makers may just be what a portfolio needs. (Learn more about the importance of the middle class, see Losing The Middle Class.)

Consumption of both alcoholic and non-alcoholic drinks in developing markets is rising exponentially as wealth increases. As these nations become more "modernized", citizens demand more sources of western luxuries and the beverage producers will benefit. In addition, the sector is pretty recession resistant. While in the developed world we take our sodas for granted, in the emerging world they represent affordable luxuries.

Filling up Your Portfolio's Cooler
While Coca-Cola's (NYSE:KO) dominance as a leading global beverage giant is well known, investors may be better suited in one of the other beverage makers located in their respective markets. Many trade as ADRs and pay nice dividends. Here are a few examples based on different emerging regions of the world.

Latin America
Latin and South America's rich natural resource deposits have helped its citizens improve their financial situation. Soft drinks sales in Brazil have grown by 2.70% through 2001 to 2007. Reaching nearly a total of 13.6 billion liters consumed. The Global X Brazil Consumer ETF (Nasdaq:BRAQ) is a great place to start as an overall arching theme on consumerism with beverage maker Companhia de Bebidas Das Americas (AMBEV) (NYSE:ABV) as one of its largest holdings. AMBEV operates in 14 different Latin American nations and is one of the largest brewers of beer, soft drinks and other beverages in the region. Its supremacy includes 70% market share in Brazil, with AMBEV being the nations sole Pepsi (NYSE:PEP) bottler. The bottler has seen good sales and earnings growth through the last 2 quarters and analysts predict earnings growing 27% in 2010. Other beverage options include Chile's Compania Cervecerias Unidas (NYSE:CCU) which pays a 3.6% dividend and winery Vina Concha y Toro S.A. (NYSE:VCO) which pays 4.10%.

Eastern Europe
While Greece is still mired in debt problems, several of its more global companies are being unfairly punished. Coca-Cola Hellenic Bottling (NYSE:CCH) serves 28 different nations including Poland, Russia and the Baltic states. The company also has penetration in Africa through Nigeria. Healthy cash flow from soft drink sales has helped Hellenic keep an investment grade debt rating from major credit agencies. Share holders of the stock are rewarded with a 1.4% dividend.

In America, we prefer beer. In France, it's fine wine. In emerging China, it's a grain based alcohol called baijiu. One of the chief ingredients in the spirit is a corn based edible ethanol. As the third largest and only publicly-traded producer of the alcohol, China New Borun Corporation (Nasdaq:BORN) could see gains as current demand outstrips supply. For investors wanting a more traditional large cap beverage maker in the region, Tsingtao Brewery (OTCBB:TSGTY) offers a globally sold product available in 62 countries.

Bottom Line
As direct play on the increasing wealth of emerging and developing nations, the beverage makers represent a great way to play these markets. As a way to tap into their growth as well as provide a level of safety through their recession resistant products, the drink manufacturers should see continued growth as investor's pare down their risky holdings and move into safer pastures. These stocks are just some of the available plays on the sector. (To learn more, see Going International.)

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