My job as chiefinvestment strategist for
requires me to look for "the next big thing."
Sometimes that means I'm looking through obscure government
reports to learn about the latest technology the Pentagon is
using that could soon make it to a retailer near you.
Other times, it means I might be on the phone with an
executive of a small company with designs on changing the way we
fuel our cars -- or treat patients in hospitals.
But sometimes, I see a game-changing product right in front of
me. And I just have to tell my readers about how they canprofit
You don't have to ownshares of
to know that through its worldwide production and distribution
network, the company owns some of the most valuable brands in the
world. All told, Coca-Cola pours 3% of the beverages served to
humanity each day.
And you don't have to work onWall Street to know that
shareholders have done pretty well in the past decade...
Coke products aren't the most-consumedliquid overall, of
course. Good old H2O accounts for the most amount of servings,
then tea. But as far as soft drinks are concerned, Coke and Diet
Coke are the No. 1 and No. 2 brands in the world.
A game-changer right in the midst of this "stodgy"
This planet consumes 55 billion beverage servings a day.
Globally, the research consultancy Datamonitor pegs the
soft-drinkmarket at an eye-popping $216 billion annually.
Beverage Digest, a trade publication,puts the value of the U.S.
soft drink market at fully $77.1 billion ayear .
The beverage industry is extremely large, highly fragmented
and intricately complex. Some brands are doing well. Others are
-- forgive me -- flat, and a few are on the express train to
But the industry view from 30,000 feet isn't so hot. Beverage
Digest, in its 2011 rankings, noted that carbonated
soft-drinksales fell 1.2% in 2012. Soft drinks haven't seen an
increase in U.S. sales since 2004, which seems to indicate people
are cutting back for reasons other than the lacklustereconomy .
Consumption, for now, is at 1996 levels.
So should investors steer clear of this industry? Not if you
want to miss out on a game-changing company with virtually
SodaStream (Nasdaq: SODA)
is an Israeli company that makes a carbonation machine that makes
custom-flavored sodas. The company has a razor/razor
bladebusiness model , given that it sells both the machines --
which cost anywhere from $99 to $129 -- as well as consumables
like CO2 cartridges, flavoring and special carbonation bottles.
The company's worldwide retail footprint comprises 60,000 stores
in more than 40 countries, including mass-market chains in the
The appeal of the product is multi-faceted...
We live in a do-it-yourself (D-I-Y) society. Consumers are
learning how to do their own home repairs, create their own
fashions, and grow their own food. And they're always on the
lookout for more ways to stop buying someone else's product or
service, and do it on their own.
Of course even the most brilliant concept can languish if
management doesn't know how to crack a market. Sodastream's
executives courted the most popular retailers to give its
products visibility. Mission accomplished. Prominent Sodastream
displays can be found in major retailers across the country.
Bed, Bath & Beyond
(Nasdaq: BBBY) and other U.S. retailers helped this once obscure
company boost its sales to more than $400 million by 2012 from
around $145 million in 2009. Considering that less than 2% of all
U.S. households have a Sodastream beverage maker, this company's
domestic growth prospects are open-ended. And management is now
tapping into a range of promising international markets as well,
setting the stage for more than $600 million in sales by 2014,
and perhaps $1 billion a year later.
This isn't just a play on sugar-laden soft drinks that you can
make at home. Many people simply make carbonated fruit juice or
make plain old seltzer. The days of lugging home aheavy case of
water bottles may soon be gone.
Of course, whenever you are looking at a young and
fast-growing company, you have to wonder if management is too
focused on sales growth and ignoring thebottom line . After all,
profit-less growth is a Pyrrhic victory: you may win the sales
battle, butwill lose the profit war.
Notably, Sodastream's bottom-line performance may be even more
impressive than its top-linegains . Per share profits rose an
average 50% in 2011 and 2012, and should continue to grow at an
average of 25% in 2013 and 2014 (to around $3.20) a share,
according to consensus forecasts.
The strategy to grow is solid: Expand its retail footprint
geographically across a variety of price points and functionally
own the do-it-yourself soda market, then expand into office
systems and food service.
That, to my mind's eye, is themoney shot.
I've tried SodaStream products, and they're good, at least as
good as the other stuff that is out there, but add booze into the
mix and you might just have The Real Thing. Restaurants live and
die on high-margin alcohol sales, and customized boozy sodas
might be a nice way to augment the till behind the bar.
I like this product. I like that the company is profitable. I
like its prospects for growth, and I like that it is riding a
pair of trends -- wellness and the environment -- that I think
have reallegs as consumer movements. I also like that the
company, valued at about $1.34 billion, has alot of room to
SodaStream is still growing, and it's not inconceivable that
it'll experience some growing pains along the way. Thestock can
be a bit volatile sometimes, so it's important that you be able
to stomach the day-to-day swings, keeping in mind that this
company is capable of big things.
You may want to wait to buy this stock on any pullbacks, but I
think shares are a good "buy" at their current level for
aggressive growth investors.
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