Buy This, Not That: Keurig vs. Monster

If you’re looking for a quick pick-me-up for your portfolio right now, you might have come across Keurig Green Mountain’s (GMCR) earnings report yesterday. As I write this, shares are surging 22% today on its better than expected fourth-quarter earnings.

But today’s earnings surge isn’t the whole story.

Even though Keurig’s $0.85 adjusted earnings beat the $0.70 estimate by a full 21.4%, the company’s earnings still dropped 10% year over year. What’s more, net sales decreased 13%, and adjusted gross profit declined 20% since last year.

Now, this is all partly because the company’s net Pod sales slipped 9% while their Brewers and Accessories net sales fell a full 32%. This is a significant loss for a company relying upon a “razor and blades” model for doing business. In other words, the more Brewers and Accessories (the razor) sales slip, the less growth the company will see in Pod sales (the blades), which can only further hurt long-term shareholders.

To top it all off, Keurig maintains an F-rating in my Portfolio Grader tool.

That’s why I’m urging current shareholders to sell into this strength, while advising prospective buyers to look elsewhere.

Where else should you look? Well if you want a caffeine-pumping company to supercharge your portfolio right now, I wouldn’t look any farther than Monster Beverage (MNST).

Monster currently dominates the soft drink market at a time when overall soda sales are flat. In fact, Monster shares shot up this month after the energy drink company trounced earnings expectations. Compared with a year ago, net sales jumped 19% to $756.6 million, while net income increased 44% to $174.6 million. Earnings per share were $0.84, and this beat the $0.81 consensus estimate by 3.7%.

Now, that may not be as powerful of a browbeating as Keurig’s earnings saw over its estimates, but remember, estimates are just that: estimates. They don’t always have the numbers to back them up. In fact, even with a substantial earnings surprise, a company might still be losing money year over year, which is precisely what’s happened with Keurig. Monster’s earnings surprise is backed by the fundamentals the company needs to justify its stock price.

So even with the recent share-price spike, Monster is still a solid Buy in Portfolio Grader.


Louis Navellier

Louis Navellier

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