With the markets once more having trouble digesting risk, defensive plays are back on investor's minds. As volatility has returned, many have begun trimming back exposure to risky assets, such as emerging markets and commodities. Traditionally, safe sectors like utilities and healthcare are once again becoming appealing, as dividend investing sees a revival. However, one sub-group of the consumer staples sector could provide big dividends, as well as a way to participate in global growth.
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Refreshing Your Portfolio
With the dog days of summer ahead of us, it may be time for investors to consider adding a glass of beverage stocks to a portfolio. Consumption of both alcoholic and non-alcoholic drinks in developing markets is rising quickly 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 considered pretty recession resistant. While in the developed world we take our sodas for granted, in the emerging world they represent affordable luxuries. The beverage makers represent a direct play on the rising incomes and growing middle classes of their respective nations.
In the developed world, rising temperatures and energy costs could be a boon for the beverage sector. The United States has already experienced record-breaking heat throughout much of the country and The National Weather Service is predicting that trend will continue for the remainder of summer. In Japan, the 9.0 magnitude earthquake and tsunami that shook the nation has caused its power grid to become strained. In an effort to help relieve that pressure, air conditioning use is being restricted, with Tokyo Electric Power asking companies to set thermostats to 82 degrees. A cold beer or soft drink offers a relatively cheap solution to keeping cool.
Cracking Open a Cold One
While Coca-Cola (NYSE:KO) and PepsiCo's (NYSE:PEP) dominance as the leading global beverage giants is well known, the pair's hyper growth stages could be behind them. For investors, the sector offers many other beverage makers, both domestic and global, that offer great prospects. Here are a few picks.
While mainstream beer is having a rough time with unemployment remaining high (which is negatively impacting volumes), niche and microbrew beer is growing by leaps and bounds. in 2010, the craft brewing industry saw volumes grow by 11%, and sales increase by 12%. This compares to growth in 2009 of 7.2% by volume and 10.3% in sales. Boston Beer (NYSE:SAM) still remains one of the craft brew leaders, despite a slippage in volumes of the last few quarters. Beer giant Anheuser-Busch InBev (BUD) has also seen the craft brewing light, recently purchasing brewer Goose Island and owning a major stake in Craft Brewers Alliance (Nasdaq:HOOK).
Soft drinks sales in Latin America have grown by 2.70% annually since 2001. Operating in 14 different Latin American nations, Companhia de Bebidas Das Americas (NYSE:ABV) is one of the largest brewers of beer, soft drinks and other beverages in the region. As incomes continue to rise in South America, AMBEV should see its fortunes rise as well. Shares of the company currently yield 4.6%. In addition, both Chile's Compania Cervecerias Unidas (NYSE:CCU) and Mexico's Coca-Cola FEMSA (NYSE:KOF) offer great plays as well.
Finally, the market for organic and "healthy" drinks continues to grow. Hansen Natural (Nasdaq:HANS) has been a market darling due its popular Monster brand energy drinks. However, the company is more than a one-trick pony, offering host of organic soda's and juices that appeal to the Whole Foods Market (WFM) lover in all of us. Hansen recently reported an earnings surprise and analysts have upped the company's EPS estimates over the last few weeks.
The Bottom Line
With volatility returning to the market, many investors have once again trading in risk for safer assets. The beverage industry offers a safe place for portfolios, while still maintaining some growth attributes. The previous stocks along with spirit maker Diageo (NYSE:DEO) are great examples of how to position a portfolio for the long hot summer. (For more, see Parched For Profits? Try Beverage Stocks.)
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