In this article, we will take a look at the 11 best coffee stocks to invest in.
Coffee is one of the most popular beverages in the world. A latest industry research report by Coffee Barometer quoted data from the International Coffee Organization, according to which coffee consumption in 2021-2022 period crossed a whopping 168.5 million bags. The coffee industry received a shock in 2022 due to unexpectedly harsh climate in Brazil, which caused a rapid increase in coffee prices. The situation was exacerbated due to rising costs of labor and fertilizers. But rising coffee costs also helped major coffee companies like Starbucks Corporation (NASDAQ:SBUX). Starbucks Corporation continues to see a rise in demand for coffee at its stores and the company’s loyal memberships are also surging.
Starbucks Corporation is also planning to increase its hold in China, one of the most lucrative markets for the industry where American companies are also beginning to face tough competition. Starbucks Corporation has ambitious goals to expand its store count in the country by 2025. The company’s biggest competitor in the country, Luckin Coffee, is also upping its game. A few years ago it was behind Starbucks Corporation in terms of store count. Now it has 11,000 stores.
Starbucks management talked in detail about its state of business in China during its latest earnings call earlier this month:
“Turning to China, we were pleased with our performance in the quarter. delivering revenue growth of 8% from the prior year or up 15% when excluding approximately 6% impact of foreign currency translation. This has further supported by a comp of 5% squarely in line with our expectations. Full-year revenue grew to $3 billion, up 3% from the prior year or up 11% excluding approximately 8% impact foreign currency translation with comp of 2%. Our performance in China improved sequentially quarter-over-quarter, with revenue in the second half of the year 20% higher than the first half, reflecting our growth momentum. These results underscore the strength of beverage and food offerings, the success of our market strategies, and the powerful execution unleashed by our partners in China as we capture the abundant opportunities in front of us.
We continue to see strength from coffee-forward innovations, delighting our customers with locally relevant product innovation like the Moose Espresso and the smaller-sized Intenso range, a first in the world. We’re also seeing higher food sales with tremendous headroom in this area, driving both transaction and ticket opportunities. In Q4, we saw continued momentum across the omnichannel experiences of Starbucks in China with strength in store through Mobile Order & Pay, Mobile Order Delivery, E-commerce, and in channels. China now has over 21 million active loyalty members, representing 22% year-over-year growth, with many members skewing younger to build our next generation of customers. In the quarter, we opened a record 326 net new purpose-driven stores in China, reaching 13% net new store growth over the prior year to over 6,800 stores at the end of fiscal year 2023.”
Read the full earnings call transcript here.
Latest Coffee IPOs and Startups
The coffee industry is also seeing a lot of new entrants, a sign of healthy competition. Recently, a Wall Street Journal report said that former Starbucks CEO Howard Schultz, recently backed a cold coffee machines startup Cumulus Coffee, which has raised $20.3 million from investors. The company reportedly plans to start taking orders for its $599 machines later this year.
In 2022, Reborn Coffee Inc (NASDAQ:REBN), a company that sells coffee and related products from its stores and kiosks in the U.S., went public. However, the stock has lost about 45% year to date. The $7 million IPO was successful in the start, as the company’s share price jumped about 80% a day after the IPO filing. Reborn Coffee Inc’s main offering include coffee beans, pour-over packs and cold-brew coffee. Earlier this month Reborn Coffee Inc posted third quarter results. GAAP EPS in the quarter came in at -$0.23. Revenue in the quarter posted an 87.5% year over year rise to $1.5 million.
Another notable entrant in the public markets is Westrock Coffee Co (NASDAQ:WEST), which went public last year via a SPAC. The Arkansas-based company’s shares have lost about 26% over the past one year. Westrock Coffee Co sells coffee, tea and extracts to foodservice outlets, restaurants, gas stations, etc. Westrock Coffee Co has coffee farms in Rwanda.
Earlier this month Westrock Coffee Co posted Q3 results. GAAP EPS in the quarter came in at $0.15. Revenue in the period fell 4.6% year over year to $219.6 million.
Methodology
For this article we scanned Insider Monkey’s database of 910 hedge funds updated for the Q3 holdings and picked 11 coffee stocks with the highest number of hedge fund investors.
Best Coffee Stocks to Invest In
11. Coffee Holding Co., Inc. (NASDAQ:JVA)
Number of Hedge Fund Holders: 3
Wholesale coffee roaster and coffee products dealer Coffee Holding Co., Inc. (NASDAQ:JVA) ranks 11th in our list of the best coffee stocks to buy according to hedge funds. Coffee Holding Co., Inc.’s business has three categories: Wholesale Green Coffee, Private Label Coffee and Branded Coffee.
As of the end of the third quarter of 2023, just three hedge funds in Insider Monkey’s database of 910 funds had stakes in Coffee Holding Co., Inc.. The biggest stake in Coffee Holding Co., Inc. belongs to Frederick Disanto’s Ancora Advisors which had a $142,781 stake in the company.
10. Farmer Bros. Co. (NASDAQ:FARM)
Number of Hedge Fund Holders: 5
Farmer Bros. Co. (NASDAQ:FARM) makes and sells coffee and tea products to hundreds of restaurants and food establishments. Earlier this month Farmer Bros. Co. posted fiscal first quarter results.
Revenue in the quarter fell about 32.5% year over year to $81.9 million, missing estimates by $3.1 million. Gross margin in the quarter jumped by 380 basis points year-over-year to 37.6%
As of the end of the third quarter of 2023, five hedge funds tracked by Insider Monkey had stakes in Farmer Bros. Co.. The biggest stake in Farmer Bros. Co. was owned by Mario Gabelli’s GAMCO Investors which reported owning a $2 million stake in the company.
9. Westrock Coffee Company (NASDAQ:WEST)
Number of Hedge Fund Holders: 8
Westrock Coffee Company grows coffee and tea and supplies related products to restaurants and food service establishments. Westrock Coffee Company recently posted third quarter results. GAAP EPS in the period came in at $0.15. Revenue in the period fell 4.6% year over year to $219.6 million. For 2023 Westrock Coffee Company expects its adjusted EBITDA to fall below its previously issued guidance range of flat to 10% over 2022. Westrock Coffee Company recently filed a prospectus to offer and sell shares of common stock, shares of preferred stock, depository shares, warrants, and units to raise $500 million.
Of the 910 hedge funds in Insider Monkey’s database as of the end of the third quarter of 2023, eight hedge funds had stakes in Westrock Coffee Company.
8. TreeHouse Foods Inc. (NYSE:THS)
Number of Hedge Fund Holders: 19
TreeHouse Foods Inc. (NYSE:THS) is a food processing company that makes several food products including single-serving coffee products, private-brand non-dairy creamers and non-dairy coffee lightener. TreeHouse Foods Inc. recently posted third-quarter results. Adjusted EPS in the quarter came in at $0.57, beating estimates by $0.05. Revenue in the quarter gained about 3.6% year over year to $863.3 million, missing estimates by $91.96 million.
Insider Monkey’s database of 910 hedge funds shows that 19 hedge funds had stakes in TreeHouse Foods Inc. as of the end of the third quarter of 2023. The biggest stakeholder of TreeHouse Foods Inc. was Israel Englander’s Millennium Management which owns a $29 million stake in the company.
TreeHouse Foods Inc.’s CFO Patrick M. O’Donnell talked about the company’s coffee business and other segments in Q3 earnings call:
“Our third quarter net sales were driven by overall volume growth, including the volume from our coffee and seasoned pretzel acquisitions, and our previous pricing actions to recover inflation. To double click into our volume performance, on the right-hand side of the slide, we’ve provided a look at our case volume by channel.
As you can see, excluding the volume from the coffee and seasoned pretzel acquisitions, which has been reported as its own bar, our core retail business grew case units by 1% in the quarter. This was better than the broader private brand market where units were flat in the retail measured channel. Including the volume from the coffee and seasoned pretzel acquisitions, our volume in the retail channel was up 2%. It’s also worth noting that our volume growth in retail would have been higher had we not faced the discreet supply chain disruption that I noted earlier. The growth in our retail business was offset by declines in food-away-from-home, and our co-manufacturing business, which supports brands.”
Read the full earnings call transcript here.
7. Restaurant Brands International Inc. (NYSE:QSR)
Number of Hedge Fund Holders: 29
Restaurant Brands International Inc. (NYSE:QSR) owns Tim Hortons, one of the most famous coffee chains in the world. Earlier this month Restaurant Brands International Inc. posted third quarter results. Adjusted EPS in the quarter totaled $0.90, beating estimates by $0.05. Revenue in the quarter jumped about 6.4% year over year to $1.84 billion, missing estimates by $30 million.
As of the end of the third quarter of 2023, 29 hedge funds tracked by Insider Monkey had stakes in Restaurant Brands International Inc.. The biggest stakeholder of Restaurant Brands International Inc. was Bill Ackman’s Pershing Square which owns a $1.5 billion stake in the company.
Restaurant Brands International Inc. talked about Tim Hortons performance in the quarter during its Q3 earnings call.
“Our comparable sales this quarter were driven by 8.1% growth at Tim Hortons Canada, 7.6% in Burger King International and 6.6% at Burger King US. In addition, Popeyes US grew 5.6% and Firehouse US was up 3.9%. Our development teams are focused on closing out the year, with Q4, as always expected to be the biggest development quarter of the year. That said, we are now expecting a higher mix of smaller format express units at Tims China, which drive brand awareness and penetration, but we will not be including in our restaurant count or net restaurant growth results given their lower ARS levels.
As a result of this, as well as smaller movements in other markets, we now expect 2023 net restaurant growth to be around 4%. Looking to 2024, we are confident, we can drive 5% plus net restaurant growth as we stabilize Burger King US ramp up Burger King China and Firehouse US and see Tims, Popeyes and Firehouse International accelerate. We are also focused on driving traffic and franchisee profitability growth at each of our brands, and we’re pleased to make progress on both this quarter. Tim Hortons Canada drove positive traffic, tickets at Burger King International were flat, and while we still have plenty of work to do, we were very pleased to see progress in our Burger King and Popeyes US businesses with traffic improving to flat year-over-year.”
Pershing Square Holdings made the following comment about Restaurant Brands International Inc. in its first half 2023 investor letter:
“Restaurant Brands International Inc. (NYSE:QSR)’s franchised business model is a high-quality, capital-light, growing annuity that generates high-margin brand royalty fees from its four leading brands: Burger King, Tim Hortons, Popeyes, and Firehouse Subs. QSR’s various initiatives are leading to more consistent growth across each of its brands, as demonstrated by its first half results which were well above investors’ expectations with accelerating same-store sales trends each quarter. We believe that the addition of Patrick Doyle as Executive Chair of the company has already made a material contribution to the company’s operating trajectory.
Burger King’s international business, which represents more than half of the brand’s profits reported same-store sales, were more than 30% above pre-COVID levels, in-line with best-in-class peers. Management is focused on replicating Burger King’s international success in the U.S. through its “Reclaim the Flame” program. While the company is in the early stages of implementing the program, it is already seeing positive results, with domestic same-store sales reaching 11% above pre-COVID levels during the second quarter. With the majority of the funds earmarked for advertising and store refreshes yet to be deployed and a larger store remodeling effort now underway, the brand’s results should continue to improve.
Tim Hortons in Canada achieved same-store sales of 15% above pre-COVID levels due to improving traffic trends and new products in the afternoon food and cold beverage categories. Despite having nearly 70% market share in hot beverages and breakfast, Tim Hortons continues to gain share in each category…” (Click here to read the full text)
6. The J.M. Smucker Company (NYSE:SJM)
Number of Hedge Fund Holders: 33
The J.M. Smucker Company (NYSE:SJM) has some of the most famous coffee brands under its umbrella, including Folgers®, Dunkin’ and Café Bustelo.
Earlier this month, Bernstein upgraded J.M. Smucker and Kraft Heinz. The firm’s analyst Alexia Howard believes the food sector’s underperformance this year is a buying opportunity.
As of the end of the third quarter of 2023, 33 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in The J.M. Smucker Company. The biggest stakeholder of The J.M. Smucker Company was Cliff Asness’s AQR Capital Management which owns a $79 million stake in the company.
While answering a question about the coffee business, The J.M. Smucker Company’s CEO Mark Smucker said during Q3 earnings call:
“We did see some — a little bit of relief in the commodity, and that’s what drove us to sharpen our price points in a few of our coffee brands. That has really took place in this month. So that will start to impact and help the business going forward. Just a reminder that as we manage price, we really try to be prudent. We do feel that it’s important to pass along both increases and decreases, but we do, do that with multiple levers. Sometimes, it’s list price, sometimes it’s trade or just getting a little bit more surgical on pricing, and that’s really what we’ve done here. And so, we do expect that to support the coffee business going forward. But beyond what I shared, we don’t — we probably cannot speculate on any future movements at this time.”
Read the full earnings call transcript here.
5. The Kraft Heinz Company (NASDAQ:KHC)
Number of Hedge Fund Holders: 40
The Kraft Heinz Company (NASDAQ:KHC) owns Maxwell House coffee brand, one of the most famous coffee products in the US. The Kraft Heinz Company recently upped its outlook for adjusted EPS for full-year 2023 to be in the range of $2.91 to $2.99, compared to the previous range of $2.83 to $2.91.
As of the end of the third quarter of 2023, 40 hedge funds in Insider Monkey’s database of 910 funds had stakes in The Kraft Heinz Company. The biggest stakeholder of The Kraft Heinz Company was Warren Buffett’s Berkshire Hathaway which owns a stake worth about $11 billion in the company.
4. Keurig Dr Pepper Inc. (NASDAQ:KDP)
Number of Hedge Fund Holders: 40
Beverage giant Keurig Dr Pepper Inc. (NASDAQ:KDP) sells coffee products such as K-Cup® pods and Barista Prima.
As of the end of the third quarter of 2023, 40 hedge funds had stakes in Keurig Dr Pepper Inc., as per Insider Monkey’s database of hedge funds.
3. The Kroger Co. (NYSE:KR)
Number of Hedge Fund Holders: 41
The Kroger Co. (NYSE:KR) sells its own branded coffee in the US. As of the end of the third quarter of 2023, 41 hedge funds tracked by Insider Monkey had stakes in Kroger. The most significant stakeholder of The Kroger Co. was Warren Buffett’s Berkshire Hathaway which had a $2.2 billion stake in the company.
Oakmark Equity and Income Fund made the following comment about The Kroger Co. in its Q3 2023 investor letter:
“The Kroger Co. (NYSE:KR) is the second-largest grocery retailer in America behind only Walmart. Although the grocery industry is highly competitive, Kroger’s scale advantages allow it to offer a more compelling value proposition than smaller peers and earn higher returns on capital. In recent years, the market has assigned Kroger a lower multiple due to concerns that e-commerce would disrupt traditional brick-and-mortar grocery. However, we believe the company’s performance through the pandemic highlighted that its store footprint, distribution infrastructure, technology investments and strong brand all position the company well for a world with higher online grocery adoption. The stock trades for just 10x our estimate of next year’s EPS, which we believe is attractive given Kroger’s competitive positioning and earnings growth outlook. The pending merger with Albertsons has the potential to drive accelerated earnings growth and further scale advantages. If the merger is not approved, the company will have the capacity to return approximately 25% of its market cap to shareholders.”
2. Starbucks Corporation (NASDAQ:SBUX)
Number of Hedge Fund Holders: 60
Starbucks Corporation ranks 2nd in our list of the best coffee stocks to buy according to hedge funds. Earlier this month Starbucks Corporation posted fiscal Q4 results. Adjusted EPS in the quarter came in at $1.06, beating estimates by $0.09. Revenue in the quarter jumped about 11.4% year over year to $9.37 billion, beating estimates by $90 million.
ClearBridge Multi Cap Growth Strategy made the following comment about Starbucks Corporation in its Q2 2023 investor letter:
“Top heavy leadership has overshadowed weakness across much of the equity market. We took advantage of the narrow breadth in the second quarter to increase our exposure to the consumer discretionary sector with two purchases that further enhance portfolio diversification and should help support consistent performance through a full cycle.
Starbucks Corporation (NASDAQ:SBUX) is the leading provider of specialty coffee beverages, operating close to 19,000 global stores primarily in North America, China and Japan and 37,000 licensed partner locations. We view Starbucks as a quality compounder with strong free cash flow, operating in a segment and in dayparts that are very much routine-based and habitual, balancing the business’s exposure to discretionary spending. Additionally, Starbucks is still in the early stages of its reinvention plan to help accelerate revenue growth over the next several years on the back of better same store sales and unit growth. Coupled with the benefits of margin expansion, we believe the company can drive double-digit EPS growth at scale.”
1. McDonald’s Corporation (NYSE:MCD)
Number of Hedge Fund Holders: 70
McDonald’s Corporation sells coffee at its outlets throughout the world. The company’s management last month talked about its coffee business in the latest earnings call:
“This approach of smaller, more affordable bundles featuring our core menu favorites was first highlighted earlier this year in Germany and the U.K. with the launch of new permanent value offerings and has since been adapted locally in other markets. In Canada, a highly competitive breakfast market, the team offered customers a more affordable option with the McMuffin and hot coffee pairing. By simply featuring our core products, at a compelling price point during a critical day part, we drove market share gains in both breakfast and coffee, demonstrating how providing customers, what they want at great value always resonates. The D123 Everyday Value Menu in the U.S. takes a similar approach to affordable bundles with nationally promoted products at locally relevant price points.”
McDonald’s Corporation also said:
“Maybe one I would just call out is in Canada, where the team there put a morning offer in place, which was a McMuffin and coffee pairing breakfast in Canada, is a pretty important daypart. Coffee is a pretty important part of that daypart. And so, I think our markets are going to continue to front footed and proactively make sure that we’re adjusting value. So it’s relevant to what our consumers are looking for as the context continues to evolve. And value, as Chris talked about, is a strategic part of our fundamental business model, but we are obviously going to continue to listen to our customers and make sure we’re delivering what they need and what they expect from us.”
Read the full earnings call transcript here.
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This article is originally published at Insider Monkey.
