Coffee. That sweet nectar that makes life possible. That joyous beverage that offers us a renewed outlook on our days. Those tasting notes of caramel and chocolate and vanilla and…well, you get the idea. If you’re a coffee connoisseur, you recognize this. If not? Fortunately, you don’t have to be a coffee nerd to enjoy the best coffee stocks.
Coffee isn’t just a beverage; it’s also a commodity. More specifically, it’s a fruit that grows on trees in higher elevations close to the equator (between the Tropic of Cancer and the Tropic of Capricorn). The abbreviated version of the coffee path is from a farm where it’s grown, to a processor where it gets washed and dried, to auction, then exported through a distributor, to a roaster, then to wholesale or retail.
In other words, there are a lot of points where we might find the best coffee stocks.
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There’s no getting away from coffee stocks
There are a few different ways to approach an investment in coffee. Because it’s a globally popular beverage, you have the option of both international and domestic stocks. You can look at it as a retail investment, as might be the case with coffee shops, or as a consumer staple that you can buy at the grocery store. And there are also larger brands that include coffee as part of their overall business.
For example, if you want to invest in Folgers coffee, you’ll need to make an investment in the consumer staples giant JM Smucker Co (SJM). Or if you’d like to put your money into Maxwell House, that requires an investment in the Kraft Heinz Co (KHC).
An investment in Coca-Cola (KO) gives you exposure to the global beverage industry through ready-to-drink coffees and teas. Additionally, Coca-Cola acquired Costa for ~$5 billion in 2019, which gave it even greater exposure to coffee. Costa is a London-based coffee chain that has operations in more than 30 countries.
And don’t forget there is coffee equipment, as well. In fact, if you consume any media at all, you’ve probably seen ads for Keurig coffee makers. Keurig coffee makers, from Keurig Dr Pepper (KDP), have surged in popularity in recent years since they allow consumers to sample their favorite coffee shop beverages (including Starbucks (SBUX), Dunkin Donuts (DNKN), and Caribou coffees) in the form of single-serve K-Cup pods
The best coffee stocks for both conservative and adventurous investors
When most people today think of caffeine, they think of Starbucks. With top-line sales in the tens of billions, Starbucks is the world’s largest coffee retail chain with over 30,000 stores globally and a presence in virtually every city of size in the U.S.
Starbucks’ management is confident it has the financial strength to make investments for the long term while navigating short-term challenges. And it’s worth noting that the company has steadily raised its dividends, while SBUX stock has tended to outperform the S&P during past bull markets.
There’s a good possibility that you already own some stock in Starbucks through a 401k or an index ETF. If not, though, this blue chip stock offers a certain amount of safety that can bring stability and long-term profits to a portfolio.
New on the scene is Dutch Bros (BROS), which came public towards the end of last year. The company predominantly operates its drive-thru coffee shops in the western U.S. but is rapidly opening new locations and has expanded as far east as Tennessee. The company handily beat revenue expectations in Q3 (reported in November) but missed earnings due to $125 million of equity-based compensation related to the IPO and subsequently met expectations in Q4 reported earlier this year.
Key to the story is the company’s aggressive growth strategy. Senior management believes that they can expand their existing store count from roughly 500 to over 4,000 in the coming years. As for the stock, it was initially priced at 23 when it began trading on September 15 and closed the day over 36. It traded as high as 76 in November before it was dragged down with growth stocks over the winter months. It (like the broader market) is working on putting in a bottom but is still up 33% from the IPO.
Of course, you should always do your homework and ensure an investment fits your portfolio before you jump in. Popularity and profitability don’t always go hand in hand.
In your opinion, what are some of the best coffee stocks? Do you have any recommendations you would share in the comments?
Michael Cintolo is a growth stock and market timing expert. His Cabot Growth Investor, with its legendary Model Portfolio, is recommended for all investors seeking to grow their wealth. His Cabot Top Ten Trader is a ticket to fast profits in stocks that are under accumulation now.Learn More