Best Soda Stocks to Buy

While tech, pharmaceutical and next-generation manufacturing stocks receive most of the attention in the financial world, better returns can sometimes be found in basic consumer staple stocks.

 

One category that has proven particularly profitable over the years is soda stocks. Soda companies can run light on capital, grow sales in many different market conditions and often offer generous dividend payouts.

 

Here are five of the best soda stocks for buy-and-hold investors to look at in today’s market.

 

Coca-Cola (NYSE:KO) is easily the best-known soda stock on the market. A longtime favorite of Warren Buffett’s and a time-tested hedge against recessions, Coca-Cola is one of the best historical stocks to buy and hold for the long term.

 

In 2022, Coca-Cola has continued to perform well, even as many other companies struggled. Organic sales rose 16 percent in Q2, including solid growth in the European and Latin American markets.

 

Coca-Cola was able to use its significant pricing power to counter inflationary pressures by raising prices 10 percent. This led to an earnings beat of $0.70, compared with the $0.67 expected by analysts.

In addition to its ability to generate strong earnings in challenging economic environments, Coca-Cola is also one of the most historically stable dividend stocks. The company has been raising its dividend consistently for 60 years. Today, the stock pays 3.12 percent for an annual distribution of $1.76 per share.

 

Coca-Cola also appears to be a fair value with ample upside potential. It trades at 23.4 times earnings, which is roughly in line with its recent P/E history. Analysts forecasts, however, give KO a median price target of $69.50, representing an upside of 23.1 percent against the most recent price of $56.41.

 

Overall, Coca-Cola is a stock that could appeal to nearly any investor. With strong potential for near-term upside, a proven track record of riding out recessions and a 6-decade dividend increase history, this stock appears to be a good fit for many different types of portfolios and investment strategies.

 

Coca-Cola’s largest rival, PepsiCo (NASDAQ:PEP) is also an excellent choice for investors seeking out consumer staples stocks. With a large portfolio of soda and snack brands, Pepsi has a loyal consumer base that continues to spend in virtually all market conditions.

 

In Q2, Pepsi delivered adjusted earnings per share of $1.86, handily exceeding the consensus estimate of $1.74. The company also beat expected revenues of $19.51 billion, generating $20.23 billion in the quarter. In a similar manner to Coca-Cola, Pepsi was able to avert inflation-related difficulties by passing higher prices along to consumers.

 

The company also reduced the sizes of some of its drink and snack products to maintain steady pricing.

Like Coca-Cola, Pepsi has been steadily raising its dividend for decades. In Pepsi’s case, the run has lasted for 50 years.

 

The stock currently yields 2.78 percent and pays $4.60 per share, putting its yield slightly below Coca-Cola’s.

 

Pepsi has, however, been raising its dividend at an average rate of 5.79 percent over the last three years, more than double Coca-Cola’s growth rate.

 

Pepsi also has a somewhat lower dividend payout ratio, indicating that the company has more room to continue raising its distribution. As such, Pepsi could be a better choice for dividend growth investors.

 

Pepsi has faced its share of challenges this year. Higher prices caused its margins to shrink, even as it charged consumers more. The Russia-Ukraine war also caused the company to take losses of over $1 billion in Q2 alone.

 

Although Pepsi still looks quite attractive, the stock doesn’t seem to have the near-term upside of Coca-Cola. Analysts expect PEP to rise from $165.06 to a median target of $183 in the coming year, generating a return of 10.8 percent.

 

While Coca-Cola and Pepsi are large, established businesses that have been around for decades, Celsius Holdings (NASDAQ:CELH) is a relative newcomer to the market. Celsius specializes in health-friendly sparkling beverages, allowing it to market to consumers who would normally avoid traditional sodas.

 

In Q2, Celsius reported revenues of $154 million, up by more than 135 percent from the previous year. The company earned $0.12 per share, beating out the consensus estimate of $0.08.

Celsius could also deliver extremely strong returns over the coming year. Analysts consensus for CELH is a price target of $121.50, up more than 31 percent from its current price. This high upside would more than make up for the stock’s lack of a dividend by rewarding investors with large gains on a very short timeline.

 

Celsius may be of particular interest to Pepsi shareholders, as Pepsi took on a $550 million stake in the company earlier this year.

 

As part of this agreement, Celsius will gain access to Pepsi’s distribution network, likely gaining a much larger retail presence as a result. With this boost, investors will likely see Celsius continue to achieve high levels of growth in partnership with Pepsi.

 

Energy drink giant Monster Beverage (NASDAQ:MNST) is a relatively fast-growing option in the soda market. This company has a strong portfolio of popular energy drinks, making it appealing to young consumers.

 

2022 has, however, been somewhat hard on Monster. In Q2, the company missed estimated earnings of $0.68 per share, delivering just $0.51. The company did beat sales estimates of $1.614 billion by delivering $1.655 billion. Revenue grew 13 percent year-over-year. The company has also begun raising its prices, a move that could help it improve earnings in the coming quarters.

Monster trades at a fairly steep multiple of 38.4 times its earnings. However, the company is also expected to perform quite well over the next few years. Next year, analysts expect growth of nearly 30 percent.

 

After that, the company will likely level off to a 5-year annualized growth rate of about 14.7 percent. Cash flows are also expected to rise significantly. As such, the currently high valuation could be justified by strong future growth trends.

 

In terms of share price, Monster Beverage is expected to rise 14.2 percent over the coming 12 months to hit a median target of $100. In spite of its lackluster Q2 earnings results, Monster enjoys a strong consensus buy rating from analysts.

 

Monster is likely a riskier buy than some of the legacy soda stocks on this list, but investors could see solid long-term growth from this company.

 

Soda and coffee manufacturer Keurig Dr Pepper (NASDAQ:KDP) rounds out the list of top soda stocks. Thanks to its exposure to both soda and coffee consumers, this stock taps into two key consumer staples that are largely resistant to recessions.

 

Keurig Dr Pepper’s revenues rose 13.2 percent year-over-year in Q2, while YTD revenues were up 9.8 percent. Earnings, however, were 51.6 percent lower than the second quarter of last year.

 

Earnings are still up by 3.7 percent YTD, and the company has slightly raised its prices to deal with inflationary pressures. The company is also expected to reduce costs by $600 million in 2022, a move that could support higher earnings going forward.

Keurig Dr Pepper does offer a dividend yield of 2.09 percent. However, this dividend has a much smaller track record behind it than Coca-Cola or Pepsi. The dividend has only been raised for the last two consecutive years following a drastic cut. The dividend payout ratio, though, is under 50 percent. As such, Keurig Dr Pepper should have plenty of room to increase its dividends going forward.

 

Analysts expected Keurig Dr Pepper to rise 17 percent to a median price target of $42. In the long-term, Keurig Dr Pepper could see gradual share price growth.

 

The company is expected to grow by about 7 percent annually for the next five years. As such, KDP will likely prove to be a slow and steady stock that could be a decent buy for conservative investors.

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