3 Beverage Stocks Making New Highs

Growing legalization of recreational marijuana use has given the beverage industry a much-needed inspiration boost. The psychoactive drug is currently legal in nine U.S. states and also recently in Canada. Legal pot sales in the United States grew 57.4% to reach $8.5 billion in 2017, with expected sales to top $20 billion in 2020. After years of slowing sales as consumers turn away from sugary drink options, beverage companies see the potential benefit of introducing cannabis-infused drinks to meet changing preferences for healthier alternatives and cash in on the green-leaf boom.

Investors who believe that marijuana-related drinks may breathe new life into leading beverage companies should add these three names to their watchlist. Let's analyze each stock more closely.

The Coca-Cola Company (KO)

Coca-Cola, with annual revenue of $30 billion, is the largest non-alcoholic beverage company in the world. The company's portfolio holds popular brands including Coca-Cola, Diet Coke, Fanta, Sprite, Minute Maid, Powerade and Dasani. BNN Bloomberg reported in September that Coca-Cola is in talks with cannabis producer Aurora Cannabis Inc. (ACB) to make marijuana-infused beverages. As of Nov. 12, 2018, Coca-Cola stock has a year-to-date (YTD) return of 10.83% and offers a 3.14% dividend yield. The company, founded in 1886, has a market capitalization of $211.46 billion.

Coca-Cola shares traded within a tight trading range of $2.50 between July and October before breaking to the upside late last month on better-than-expected third quarter earnings. Investors who wish to buy the stock should look for an entry at the $46.5 level, where the price should find support from the top of the previous trading range and 50-day simple moving average (SMA).

Chart depicting the share price of The Coca-Cola Company (KO)

PepsiCo, Inc. (PEP)

Headquartered in New York, Pepsi, with a market cap of $165.83 billion, manufactures and distributes nonalcoholic beverages as well as a range of grain and snack foods. The company, founded in 1898, owns well-known brands such as Pepsi, Gatorade, Mountain Dew, Tropicana, Quaker, Lay’s, Doritos and Cheetos. In early October, Pepsi CEO Hugh Johnston told CNBC the company would look "critically" at investing in cannabis. Trading at $117.48, the stock is up 0.18% YTD but has gained 8.66% over the past month as of Nov. 12, 2018. Investors receive a 3.16% dividend yield.

Pepsi's share price fell roughly 20% between February and May before staging a V-shaped recovery over the summer months. The stock has rallied sharply since mid-October and is trading just below its current YTD high of $119.52. Traders should consider buying the stock on retracements to the $114 level – this price area is likely to find support from a trendline that connects several swing highs.

Chart depicting the share price of PepsiCo, Inc. (PEP)

Keurig Dr Pepper Inc. (KDP)

With a market cap of $39.62 billion, Keurig Dr Pepper formed as the result of an $18.7 billion merger between Keurig Green Mountain and Dr Pepper Snapple in July 2018. The beverage conglomerate manufactures and markets coffee products and Keurig brewers as well as a variety of soft drinks and juices. Although there's no Street talk of Keurig Dr Pepper exploring cannabis-infused beverage options, the company's leading position in the K-cup and soft drink space places it in an ideal situation to form a partnership with a mid to large-sized cannabis player. Keurig Dr Pepper stock yields 2.1% and has returned an impressive 20.11% over the past three months, outperforming the beverages industry average gains by nearly 14% over the same period as of Nov. 12, 2018.

The Jan. 20 gap and "three white soldiers" chart pattern, which consists of three consecutive long-bodied candlesticks, stand out on Keurig Dr Pepper's stock chart – both relate to the merger. From mid-July through October, the stock consolidated before breaking out to a new high after the company announced that it had agreed with Danone Waters of America to distribute Evian-branded bottled water in the United States. Those wanting to buy this stock should look for pullbacks to the breakout level of $25, where the stock's price finds support from the previous area of consolidation.

Chart depicting the share price of Keurig Dr Pepper Inc. (KDP)
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