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Better Buy: Coca-Cola vs. Monster Beverage

Two beverage partners are headed in opposite directions these days. Shares of soft drink giant Coca-Cola (NYSE: KO) have traded sideways for 52 weeks (including the benefit of reinvested dividends), while energy drink specialist Monster Beverage (NASDAQ: MNST) rose 31% in the same span. For reference, the S&P 500 (SNPINDEX: ^GSPC) index stands between these extremes with a total gain of 15%.

These opposing price trends have many investors wondering where the two drink titans and longtime business partners will go next. Can Coke pull off a turnaround? Will Monster's momentum continue? And which beverage stock is the better buy right now?

Let's take a look.

Monster Beverage

It might be a mistake to look at Monster's 52-week performance. One year ago, the stock showed a 52-week return of negative 9%. Consumers struggled to control their budgets, often leaving minor luxuries such as Monster's energy drinks out of the equation. Moreover, the company faced tough competition from the exercise-targeted energy alternative Bang and the health-conscious Celsius (NASDAQ: CELH).

But the economic strife has calmed down, and the competitive landscape changed. After winning a devastating victory in a false-advertising lawsuit against Bang parent Vital Pharmaceuticals last September, Monster bought Vital out of bankruptcy for $362 million.

That deal closed at the end of July 2023 and has not affected Monster's business results yet, but investors can see what's coming in a less-competitive energy drinks market. Plus, Monster is now selling a selection of Bang's drinks in addition to its own Reign brand of workout boosters. The coming quarters should see a caffeinated revenue stream, which also leads to increased bottom-line profits.

So Monster's stock bounced back from a multiyear low to set a new all-time high in May 2023. Shares aren't exactly cheap at 43 times trailing earnings and 9 times sales, but the company supports that rich valuation with a long history of rapid revenue and earnings growth.

Adding Bang to its tool belt will be useful for a while, though it wouldn't surprise me if Monster eventually ends that brand and lets Reign cover the demand for caffeinated exercise drinks.

Co-CEO Rodney Sacks already said that he expects to "rationalize" the Bang product line and "integrate Bang into the Monster infrastructure." This could mean many things, but I don't think Bang will be around much longer. Its manufacturing plant in Arizona will probably switch over to Monster production as time goes by.

Coca-Cola

Coke is a different story. This stock largely ignored the market downturn of 2022, rising 11% on a dividend-adjusted basis while the S&P 500 plunged 18%. Cash-strapped consumers go back to the basics, and many of Coca-Cola's products qualify as necessities.

I'm not talking about just the Coca-Cola, Fanta, and Sprite trifecta of dominant soft drinks. The company also manages the juice brands Minute Maid and Simply, the Powerade sports drink, and several popular water names such as Dasani and Smartwater.

The economic trends that lifted Monster in recent months had the opposite effect on Coca-Cola. Since Coke is a blue chip dividend payer rather than an exciting growth stock, investors tend to buy it during hard times and sell when the market starts to look exciting again. This cycle says a lot about Coke's stock gains in 2022 and its drop in 2023.

Meanwhile, the soft drink giant isn't sitting on its hands. The company has slimmed down its portfolio of drink brands in recent months, dropping about half of its offerings in order to focus on higher-performing names.

As a result, second-quarter business is booming with double-digit sales growth in Latin America and Global Ventures (mostly the Costa Coffee business, and the Monster distribution deal falls under this umbrella). The same segments also delivered dramatically higher operating profits, and the all-important North American division showed a 45% increase on that line.

With the lower stock price and robust business results, Coca-Cola offers a generous dividend yield of 3%. The stock trades at a modest 25 times earnings and 6 times sales. Nobody expects skyrocketing growth from a 137-year-old industry giant, but Coke offers reasonable and rock-steady sales growth.

Is Monster or Coke the better buy today?

These two companies might look similar at a glance, since they occupy different parts of the same beverage market. But their product lines have very little in common, their business models are dramatically different, and their stocks appeal to two separate investor groups.

If you're looking for stable dividend income and predictable long-term stock returns, Coca-Cola should be right up your alley. But if you want high-octane growth and rapid returns on your investment -- with elevated risk of slowdowns and downturns along the way -- Monster Beverage could be your cup of hyper-caffeinated tea.

And don't forget that the two companies are partners, too. Monster benefits from Coca-Cola's world-class distribution system. As part of that 2015 deal, Coke owns 19% of Monster's stock and takes part in the energy drink specialist's business results.

There is no clear loser in this duel. Both stocks strike me as fantastic investments right now, just for different reasons and with different expectations. Ultimately, your choice between Coke and Monster will hinge on whether you prioritize stable dividends or growth potential: two proven investment strategies. And if you can't decide which approach you prefer, you might want to diversify your portfolio by grabbing a few shares of each.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Celsius and Monster Beverage. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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