Imagine if, for every cup of coffee you bought, you instead invested that money into coffee stocks. I am not suggesting you stop drinking coffee. That would sound miserable. Yet, this idea got me to start making coffee at home instead of buying overpriced lattes. While the few dollars saved daily won’t make you rich overnight, this practice could end up highly beneficial over time when weighed against the potential for compounded returns.
The global coffee market appears to be enjoying powerful momentum driven by increasing consumption. The global coffee market is projected to grow at a CAGR of 4.84% from 2024 to 2030. By 2030 that translates to an estimated value of about $161.66 billion. The following three coffee stocks should allow you to gain considerable exposure in this trend, and hopefully perk up your returns over the long-term.
Starbucks Corporation (SBUX)
Starbucks Corporation (NYSE:SBUX) is likely the most popular coffee stock amongst investors. At the end of April, the company boasted more than 38,900 company-operated and licensed stores. With those numbers its no wonder that its brand has become synonymous with the coffee culture worldwide.
Unfortunately, Starbucks stock has been under pressure lately, having lost nearly 20% of its value over the past year. In fact, the stock is now hovering at the same levels it did in May 2019. In other words, excluding the modest dividend, investors have made no money on the stock over the past five years.
This decline can be attributed to soft comparable store sales, which fell 4% in its Q2 2024 results. Specifically, management sees full-year comparable sales growth in the U.S. coming in at a low single-digit rate to flat, against the prior expectation for growth of between 4% and 6%.
Nevertheless, I believe that Starbucks will find its footing soon. It’s a quality company with decades of superb shareholder value creation. While short-term bumps along the way have occurred multiple times in the past, Starbucks has consistently emerged stronger.
Nestle S.A. (NSRGY)
Nestle (OTCMKTS:NSRGY) is another quality company if you are looking for exposure in the coffee industry. While the Swiss behemoth may be better known for its expansive array of consumer goods, its presence in the coffee industry is quite significant.
Through its Nescafe and Nespresso brands, Nestle has secured a key position in the global coffee market. Its Nescafe brand leads the instant coffee market. It’s known for offering convenience and consistency in quality. Meanwhile, Nespresso has captured the premium market with its elegant coffee machines and quality coffee capsules, appealing to consumers seeking a nice coffee experience at home.
Like Starbucks, Nestle stock has also come under pressure, losing about 16% of its value over the past year. This is not surprising as a consumer defensive stock in a rising-rates environment. Nevertheless, the company remains a cash cow. Given its highly resilient business model and durable brands that have historically powered strong long-term value, the recent share price decline could present a compelling buying opportunity.
J. M. Smucker Company (SJM)
Similar to Nestle, J.M. Smucker Company (NYSE:SJM) is not exclusively a coffee stock. It is known for multiple other products beyond coffee, including its iconic jams and peanut butter. That said, it has also carved out a significant presence in the coffee industry via multiple coffee brands, including Folgers and Dunkin’.
Its Folgers brand is a household name in the U.S. It offers a range of products, from classic ground coffee to convenient single-serve pods, striving to appeal to diverse consumer preferences. Moreover, Smucker’s acquisition of the previously publicly traded Dunkin’ brand in 2020 has further strengthened its position in the coffee market.
This is another stock that has fallen victim to rising interest rates, which have compressed its valuation and led to notable share price declines. Over the past year, SJM stock has lost about 25% of its value. With shares trading at a forward P/E of just under 11, this quality operator could present significant upside potential for investors seeking exposure to coffee stocks.
On the date of publication, Nikolaos Sismanis did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
