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Hedge Funds Like Pepsi More than Coke and Other Soda Rivals

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Given that drinking soda can be as strong a habit for some people as smoking cigarettes, demand for soda companies doesn’t change very much during bad-times. The stability of demand affords many soda companies with stable and predictable earnings, two characteristics highly prized in the investment community. On the account of those facts, Insider Monkey has put together a list of the smart money’s favorite soda stocks as of the end of the second quarter, based on their popularity among some 750 funds we track at Insider Monkey.

Let’s dive in, and analyze hedge funds’ top soft drink picks, which include PepsiCo, Inc. (NYSE:PEP), The Coca-Cola Co (NYSE:KO), Coca-Cola European Partners plc Ordinary Shares (NYSE:CCE), Dr Pepper Snapple Group Inc. (NYSE:DPS), and Monster Beverage Corporation (NASDAQ:MNST).

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see the details here).

Most Expensive Sodas In The World

#5 Monster Beverage Corporation (NASDAQ:MNST)
– Number of Hedge Fund Holders (as of June 30): 33
– Total Value of Hedge Fund Holdings (as of June 30): $1.55 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 4.80%

With 33 investors tracked by our team bullish on the company at the end of June, Monster Beverage is the fifth favorite beverage stock on our list. Monster is also one of The Coca-Cola Company’s favorite stocks too, as it owns a 16.7% stake. Coca-Cola bought a stake in Monster to diversify its exposure from the soft drink market and to help its growth rate. Coke’s purchase provided Monster with a net cash payment of $2.15 billion, and a powerful partner in Monster’s attempt to gain market share in the energy drink market. Given the alliance, Monster has a lot of growth ahead. Analysts expect Monster to grow its earnings per share by an average of 21.3% each year for the next five years. Bruce Kovner’s Caxton Associates LP raised its position in Monster Beverage by 39% in the second quarter to 1.37 million shares.
Follow Monster Beverage Corp (NYSEMKT:MNST)
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#4 Dr Pepper Snapple Group Inc. (NYSE:DPS)

– Number of Hedge Fund Holders (as of June 30): 34
– Total Value of Hedge Fund Holdings (as of June 30): $2.08 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 11.60%

Although it isn’t as large as The Coca Cola Company or PepsiCo (and thus doesn’t realize as much economies of scale), Dr Pepper Snapple Group Inc. (NYSE:DPS) can nevertheless hold its own. For its second quarter, Dr Pepper Snapple reported EPS of $1.25 on revenue of $1.7 billion, beating the average estimates by $0.05 and $20 million, respectively. Non-carbonated beverage volume rose by 2%, while carbonated volume inched up by 1%. Dr Pepper expects full-year earnings of $4.27 to $4.35 per share, giving the stock a reasonable forward P/E of around 20. Of the around 750 funds that Insider Monkey tracks, 34 had a bullish position in Dr Pepper Snapple Group Inc. (NYSE:DPS) heading into the third quarter.

Follow Dr Pepper Snapple Group Inc. (NYSE:DPS)
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