Ready to Pop: 3 Beverage Stocks to Buy Before They Bubble Up

Stavros Tousios

Thu, Jun 6, 2024, 1:24 PM 4 min read

With temperatures on the rise, investors are looking into the next beverage stocks to buy before they bubble up. Scientists expect 2024 to be the hottest year on record, with at least a 99% likelihood of it making it to the top two warmest-ever summers on record. Higher temperatures from climate change are expected to push demand for refreshing beverages up in the coming months.

The expected scorching weather points to strong growth in beverage consumption, with an estimated increase of over 10% this year. Most of the gains are projected to come from non-alcoholic preferences. Price-conscious consumers continue to seek value despite the expected increase in demand. Online retailers are well-positioned to offer convenience and competitive pricing to this segment. Additionally, surveys show a focus on health and wellness, highlighting low-sugar and immunity-boosting products as top preferences.

Given these trends, certain beverage stocks may rise as summer approaches. The following three beverage stocks to buy show promise for gains in the hot months ahead.

Primo Water (PRMW)

A zoomed in photo of a drop of water hitting a container of water's surface.

Source: Sambulov Yevgeniy/ShutterStock.com

Primo Water (NYSE:PRMW), a leading provider of water solutions in North America and Europe, is one of the beverage stocks to buy for refreshing gains. The company sells bottled water, water filtration systems and other water-centered products. The PWMW stock price has risen over 50% year-to-date (YTD).

The company has reported strong earnings for the first quarter under its new CEO, Robbert Rietbroek, a former PepsiCo (NYSE:PEP) executive. It posted earnings growth and raised full-year guidance and quarterly free cash flow (CFC) from continuing operations. EBITDA increased by 24% and revenue by 9.6% in Q1 2024, resulting in a gross margin of 64.4%.

Primo’s price-to-earnings (P/E) ratio of 45.6x is above the beverage industry average of 25x. However, the company’s performance over the past several quarters suggests continued growth in an industry characterized by a defensive nature.

Embotelladora Andina (AKO-B)

Source: ©iStock.com/rsi1986

Embotelladora Andina (NYSE:AKO-B), based in Santiago, Chile, is another beverage stock worth considering. As South America’s largest bottler and distributor of Coca-Cola (NYSE:KO) products, it offers stability as a consumer staple as well as emerging market growth potential. Beyond main Coca-Cola brands, the company also markets a variety of sports drinks, fruit juices and mineral waters and licenses bottling services.

Embotelladora Andina stands out for its profitability. In the last quarter, revenue increased 14.6% to CLP 804.6 billion, driven primarily by revenue growth in Brazil (44.45%) and Paraguay (37.9%). The company achieved an adjusted EBITDA margin of 19.9%, well above the industry average of 10.6%. Notably, Ebotelladora increased net income by 63.4% to CLP 70.8 billion despite lower sales volume year-over-year.

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So far this year, the AKO-B share price has risen largely in line with the overall market, shy of a 30% gain. That suggests the company’s upside may be underappreciated, as it trades at a lower PE ratio of 13.4x while offering twice the industry’s dividend yield at 4.65%.

Keurig Dr Pepper (KDP)

Source: Shutterstock

Keurig Dr Pepper (NYSE:KDP) is the last pick of beverage stocks to buy. As an established company in the non-alcoholic beverage industry, it is the only company on this list selling coffee. Keurig’s CEO plans to revitalize the coffee business with its new brewing system, K-Rounds, plant-based coating pods for environmentally friendly coffee lovers. The company also owns other brands suited for health-conscious consumers, such as Snapple and Core Hydration.

The company’s increased gross profit during the last quarter supports its strong financial position. Management said they expect mid-single-digit revenue growth and high single-digit adjusted EPS growth for the full year, driven by momentum in the U.S. and international businesses. The company plans to expand in Q3 in Arizona by acquiring Kalil Bottling.

The KDP stock trades at a low P/E ratio of 22.3x, slightly below industry averages, and offers a dividend yield of 2.5%. After bottoming in mid-March, the KDP share price has risen steadily and may return to its prior levels when its P/E ratio was in the 30s in recent years.

On the date of publication, Stavros Tousios did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Stavros Tousios, MBA, is the founder and chief analyst at Markets Untold. With expertise in FX, macros, equity analysis, and investment advisory, Stavros delivers investors strategic guidance and valuable insights.