We recently compiled a list of the 7 Best Coffee Stocks to Buy Now. In this article, we are going to take a look at where Keurig Dr. Pepper Inc. (NASDAQ:KDP) stands against the other coffee stocks.
Coffee is one of the most widely consumed beverages globally, however, not many investors are bullish on coffee stocks right now as AI seems to be getting all the attention. The coffee market is growing and estimates by Mordor Intelligence valued it at $132.13 billion in 2024. The market is expected to grow to $166.39 billion by 2029, at a compound annual growth rate of 4.72% over the forecast period.
Consumers are currently worried since coffee sellers have predicted that the already high prices will spike even more in the near future. Supply disruptions from Vietnam to Brazil have resulted in high prices for the Arabica and Robusta beans. The reasons behind the surge in prices are diverse. While weather conditions in major coffee bean exporting nations including Brazil and Vietnam have impacted the size and quality of the arabica beans, rising demand in markets such as China also tightened the supply. Considering the fact that Arabica beans are preferred by coffee giants and Robusta beans are best for instant coffee, there is no sense of relief for the end consumers who are paying for their daily dose of coffee.
Prevailing Trends in the Market
As reported by the World Bank, the beverage price index hit a 13-year high in February as a result of the surging prices of Robusta coffee and cocoa. Coffee Arabica and Coffee Robusta prices hit $4.61 and $3.38 per kilogram, respectively. The reaction of the industry to these prices has been diverse. While some suppliers have warned consumers of further price hikes for their products, other coffee chains are finding store closures convenient. The competition for supplies continues to rise as the demand for coffee in non-traditional markets is expanding. While the dynamics of the market have shifted to more online orders or drive-throughs, some critics mention coffee brands have let go of the idea of offering premium customer service in stores.
The real question revolves around what the coffee industry holds for consumers in the future. While many believe that the price hikes will not be so severe, the underlying challenge penetrating coffee-producing regions is climate change and not just bad weather. Although pests and diseases due to heavy rainfall impacted the coffee yield in Brazil, just like the high temperature in Vietnam, the issue is more dense. Considering the fact that such regions can become unusable by 2050 if the circumstances persist, the coffee industry remains under serious threat.
The coffee market may be under pressure but it goes without saying that caffeine is a staple in today’s high-paced world. Whatever challenges persist, products from top coffee companies will continue to be on the shelves of retail stores and in the kitchen cabinets of consumers. Coffee stocks might even be ideal for recession-proofing your portfolio. With that, let’s dive into the 7 best coffee stocks to buy now.
Our Methodology:
In order to compile a list of the 7 best coffee stocks to buy now, we first sifted through ETFs and online rankings to gather a preliminary list of 20 coffee stocks. We then selected the top 7 stocks that had the highest number of hedge fund holders as of March 31. The 7 best coffee stocks to buy now are arranged in ascending order of their number of hedge fund holders, as of the first quarter of 2024. We have also included analysts’ average upside potential for the stocks in our list.
Why are we interested in the stocks that hedge funds pile into? The reason is simple, our research has shown that we can outperform the market by imitating the top stock picks of best hedge funds. Our quarterly newsletter’s strategy picks 14 small and large-caps every quarter and it has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A conveyor belt filled with assorted K-Cup pods, ready for packaging.
Keurig Dr. Pepper Inc. (NASDAQ:KDP)
Number of Hedge Fund Holders: 48
Average Upside Potential as of July 31: 5.50%
Keurig Dr. Pepper Inc. (NASDAQ:KDP) serves as a leading beverage company in North America. The company has a portfolio of over 125 owned, licensed, and partner brands. The company offers ready-to-drink beverages catering to diverse tastes including carbonated soft drinks, tea, still or sparkling water, juice, and non-alcoholic mixers. In the ready-to-brew category, specialty coffee and other specialty beverages in K-Cup pods are offered. In addition, traditional whole bean and ground coffee in bags, fractional packages, and cans are available for consumers. Simultaneously, consumers can enjoy ready-to-eat products from Keurig Dr. Pepper.
A consumer-centric innovation model is what has helped Keurig Dr. Pepper effectively capture the market of 45 million North American coffee consumers who use Keurig brewers. The company is known for transforming the way consumers brewed coffee through the introduction of K-Cup pod single serve coffee system. The experience that it has to offer to its consumers just doesn’t end here. Recently in March, Keurig has come up with another evolutionary experience by announcing the upcoming K-Rounds plastic-free pods which will be working in the new Keurig Alta system enabling consumers to make hot and cold barista-style beverages without any complex brewing techniques.
The above point of differentiation has brought financial stability for Keurig Dr. Pepper which recently reported strong results for the second quarter through solid EPS growth and growing net sales. Earnings came in at $0.38 per share and revenue inched up 3.5% year over year to $3.92 billion. The company witnessed double-digit growth in the International segment and robust performance in U.S. Refreshment Beverages. In the US coffee segment, although the net sales decreased by 2.1%, brewer shipments for the twelve months ending June 30, 2024 experienced growth which still proves the market share momentum of the firm.
The company’s ability to penetrate a wider coffee consumer base by challenging itself to reimagine what the brand could be makes it quite special. Apart from the quality and choice that Keurig has to offer, the firm has grown impressively thanks to a diversified beverage portfolio. Over the past five years, Keurig Dr. Pepper Inc. (NASDAQ:KDP) has grown its revenue by 6.7% and net income even more impressively by 17.8%. The stock was part of 48 investors’ portfolios at the close of the first quarter of 2024 and Citadel Investment Group was the top shareholder with a stake worth $277 million.
Overall KDP ranks 2nd on our list of the best coffee stocks to buy. You can visit 7 Best Coffee Stocks to Buy Now to see the other coffee stocks that are on hedge funds’ radar. While we acknowledge the potential of KDP as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than KDP but that trades at less than 5 times its earnings, check out our report about the cheapest AI Stock.
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Disclosure: None. This article is originally published at Insider Monkey.