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Surge in Coffee Prices Puts 4 Beverage Stocks in Focus

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Stringent lockdown measures around the globe has pushed up coffee prices, as homebound caffeine lovers have taken to hoarding the beverage in recent weeks. Lockdown measures to curb the spread of the coronavirus pandemic, and subsequently its impact on the beverage’s supply have given rise to panic-buying in many countries.

Let us thus take a look at the factors boosting coffee prices and note a few stocks that may gain from this new development.

Stockpiling Leads to Price Uptick

Ever since the flu-like disease was discovered in December 2019 and started spreading fast across continents, consumers took to hoarding food and essential products. Coffee, being a popular beverage, has not been an exception. The rise in food protectionism in recent months has impacted the demand for coffee, thus giving the beverage’s prices a much-needed boost.

Consumer demand for packaged coffee rose in March. Weekly sales of the beverage in the United States increased as much as 73% from 2019, according to Nielsen. 

In fact, according to the International Coffee Organization’s (ICE) report in the week ended Apr 18, “panic buying and stockpiling” led to higher demand in some countries, upon a study of retail- and supermarket-level data. For example, spending on coffee in France surged 34.6% against the same period in 2019, while in Italy, spending rose 29.5%, as per data from Chicago-based market research company IRI.

Taking a look at ICE’s Coffee C Futures (U.S.), which is the world’s benchmark for Arabica coffee, one may note that the contract was priced at $117.950 for July 2020, at $119.100 for September 2020, at $120.500 for December 2020 and at $122.050 for March 2021. This gradual rise in coffee prices indicates growing demand for the beverage ahead.

Another reason for the increase in coffee prices is big brands such as Nestlé, JAB and Lavazza rushing to replenish their inventories of coffee beans, per the Financial Times. The higher quality arabica beans’ futures benchmark (traded in New York) has surged as much as 20% since the beginning of February to $1.20 a pound, putting it on the list of the world’s top-performing commodities.

Investors who wish to make the most of this uptick in coffee prices could thus track a few stocks from the industry right now.

4 Stocks to Watch

We have rounded up four stocks that manufacture, roast or market coffee and its variants. Each of these stocks carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Starbucks Corporation (SBUX - Free Report) is a retailer of specialty coffee. The company’s expected earnings growth rate for next year is 62.2%. Shares of Starbucks, which belongs to the Zacks Retail - Restaurants industry, rose 32.9% in the past month compared to S&P 500 Index’s 24% gain in the same timeframe.

Keurig Dr Pepper Inc. (KDP - Free Report) is a beverage company that offers single-serve brewing systems and specialty coffee. The company’s expected earnings growth rate for next year is 12.4%. Shares of Keurig Dr Pepper, which belongs to the Zacks Beverages - Soft drinks industry, rose 11.2% in the past month.

Nestle S.A. (NSRGY - Free Report) is a food and beverage company. The company’s expected earnings growth rate for next year is 2.8%. Shares of Nestle, which is from the Zacks Food - Miscellaneous industry, rose 14.3% in the past month.

The J. M. Smucker Company (SJM - Free Report) is a manufacturer and marketer of branded food and beverage products. The company’s expected earnings growth rate for next year is 0.6%. Shares of J. M. Smucker, which belongs to the Zacks Food - Miscellaneous industry, rose 16.8% in the past month.

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