After a decades-long love affair with sugary carbonated sodas, an increasing number of Americans are deciding that things go better without Coke. "Big Soda" faces a big day of reckoning, as calorie-conscious consumers shun soft drinks in favor of bottled water.
Soda is becoming "the new smoking," as it gets targeted by public officials for exacerbating the nation's obesity epidemic. Concerns about the safety of public drinking supplies, as reflected by the disaster in Flint, Mich., only fuel the appeal of bottled water.
One of the surest ways to make double-digit gains over the long haul is to invest in accelerating trends that enjoy demographic, cultural and economic tailwinds. The rise of bottled water as an alternative to soda is one such trend. Below, we pinpoint the stock best positioned to profit.
Soda consumption rocketed higher from the 1950s through the 1990s, as Coke and Pepsi became synonymous with post-World War II affluence. But the era of Coke and Pepsi is ending, as soda experiences a serious and sustained decline.
U.S. per-capita consumption of carbonated soft drinks has fallen to its lowest level since 1986. Global sales of bottled water products are expected to grow at compounded annual growth rate of 8.4% from now until 2022, according to Brisk Insights. Meanwhile, sales of full-calorie soda in the U.S. have plummeted by more than 25% over the past 20 years, The New York Times noted. That makes bottled water one of the hottest growth investments available.
The current antisoda sentiment has the big soda makers such as Coca-Cola (KO - Get Report) and PepsiCo (PEP - Get Report) worried. Even diet sodas are experiencing a sharp decline in sales. As consumers increasingly see soda as a vice or a luxury, they appear to be fleeing the category altogether.
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Although the big soda companies all sell bottled water, they aren't that excited about the trend because bottled water is a less reliable line of business for them. Single-serving bottles of water, like Aquafina from PepsiCo and Dasani from Coca-Cola, earn margins similar to those of soda, but customers appear to have less brand loyalty to water brands than to Coke or Pepsi.
To be sure, an emphasis on health and wellness is increasingly important for Dr Pepper Snapple (DPS) , the third-largest soda maker in the U.S. The company has a growing number of innovative beverages in the pipeline that offer reduced calories and better nutrition. Leading energy drink purveyor Monster Beverage (MNST - Get Report) also is experimenting with low- or no-calorie versions of its best-selling energy beverages.
As these soda companies try to co-opt the move toward bottled water, however, they can't revise their entrenched business models fast enough to stem the downward pressure on revenue and earnings. No amount of clever marketing can alter this reality.
That's why the best stock to play the bottled water frenzy is Nestlé (NSRGY) , the giant consumer foods company that provides a wide variety of brand-name nutrition, health and wellness products. Based in Switzerland, Nestlé is the largest food company in the world. This stock offers healthy capital appreciation as well as reliable income.
With operations around the globe and a market capitalization of $237 billion, Nestlé sells products that are familiar if not beloved household names. Among its many brands are Alpo, Gerber, San Pellegrino, Nesquik, Butterfinger, Baby Ruth, KitKat, Nescafé, Stouffer's, Carnation, Coffee-Mate, Nestea, Häagen-Dazs, Friskies, Purina ... the list of famous names is long.
Nestlé currently controls at least 70 of the world's bottled water brands, and according to Market Realist, Nestle Waters North America is the leader in the U.S. bottled water industry.
Bottled water sales currently account for roughly $4 billion of Nestlé's annual sales of $100 billion. The growth of the company's bottled water sales is surpassing the bottled water sales of its rivals, as the Swiss company boosts production, distribution and marketing of water. Nestlé is now investing $200 million to create seven new U.S. production lines for bottled water.
With a trailing 12-month price-to-earnings ratio of 24.7, Nestlé is cheaper than Coca-Cola (27.3) and PepsiCo (28.8).
What's more, Nestlé's dividend yield is a solid 2.5%. Nestlé has kept the dividend the same or hiked it every year since 1959. If you're looking to ride the bottled water trend, this underappreciated European multinational will slake your thirst for growth and income.
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