Best Stock to Buy Right Now: Coca-Cola vs. Monster Beverage

Key Points

• Monster Beverage has outperformed the market since partnering with Coca-Cola in 2014, driven by explosive growth in the energy drink category.

• At 23.5 times earnings, Coca-Cola's well-known brands offer stability and value.

• Both companies are quality investments with no clear loser -- your choice depends on whether you prioritize income or growth.

• 10 stocks we like better than Coca-Cola ›

Beverage veterans Coca-Cola (NYSE: KO) and Monster Beverage (NASDAQ: MNST) have been business partners since 2014. The soft drink giant made a $2.2 billion investment in Monster back then, while signing an exclusive distribution deal with the energy drink maker.

11 years later, Monster's stock has been beating the market while Coca-Cola lagged behind.

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Will these trends continue, or is it Coke's time to shine? In short, which beverage specialist is the better stock to buy today?

Why Coca-Cola looks tasty

Look up "brand power" in a dictionary and you might see a Coca-Cola logo. I'm not even kidding.

Everybody knows this company and its plethora of market-defining brands. "Coke" is a literal synonym for "soda," "pop," or "soft drink" in some regions. The Diet (or Zero) version is almost as iconic. Other soda brands include Sprite and Fanta, besides water names like Dasani and Smartwater. Sports drinks, bottled coffee, orange juice, lemonade... I could keep going. Apart from alcoholic beverages and energy drinks, Coca-Cola is a major player in every drinkable segment I can think of.

So if you thought Coke was a one-trick pony, that was a mistake. The company's diversification has been an ongoing effort for decades. As a result, Coca-Cola is ready to swing right along with changing consumer tastes. When people want water and fruit juice, VitaminWater and Minute Maid are ready to serve. If the market mojo leans back toward sugary or sugar-free sweet drinks, well, I already mentioned the leading soda brands.

This built-in diversification makes Coca-Cola a stable long-term investment. It also pays a generous dividend, currently yielding 3.1%. It's one of master investor Warren Buffett's favorite holdings, generating about $816 million in dividend payouts for his Berkshire Hathaway portfolio this year.

I'll admit that Coca-Cola sometimes hits a rough patch, like the slow revenue growth and modest profits seen in recent years. However, this centennial beverage giant keeps recovering from every setback. If you're looking for ultimate stability, robust dividends, and a modest valuation of 23.5 times earnings, Coca-Cola could be the stock to buy today.

Monster's caffeinated growth story

Monster Beverage is much more specialized. Its namesake energy drink is Monster's flagship brand, followed by the sugarless Ultra line, the natural flavors of its Monster Juice drinks, and the Reign series of workout-optimized evergy beverages. I'm partial to the Java Monster coffee-based drinks myself.

That's not a complete list, of course. The company also took over the Full Throttle brand from Coca-Cola in 2014. Bang Energy was a threat in the workout drinks market for a while, until Monster sued it into bankruptcy and then bought the brand for pennies on the dollar. Monster is even exploring alcoholic beverages now, with products like hard seltzers and craft beers.

Energy drinks is a much younger target market than general beverages or carbonated sodas. The whole category is growing in leaps and bounds with double-digit annual revenue jumps in North America and more than 20% gorwth rates in newer target regions.

As a leading force behind these impressive growth rates, Monster is pushing the envelope in several ways. Coca-Cola's global shipping system helps Monster enter new international markets, and the company is trying new marketing tactics in the U.S..

Monster has partnered with sports superstars for many years, but is stepping up that effort with name-checking products like the Monster Energy Lando Norris Zero Sugar Formula One tie-in. Furthermore, management feels that energy drinks haven't kept up with the price increases in other drink categories in recent years, and it's time to make some adjustments.

Now, everything Monster does is on a smaller scale than Coca-Cola's massive market footprint. That leaves more room for high-octane growth, though. Monster Beverage could be a great buy if you're willing to pay a premium P/E of 40.0 for a proven growth story.

Image source: Getty Images.

Pick your potion

So I don't have a clear winner for every situation, but there are no losers here, either. Your choice in this matchup really depends on your investing goals.

• If you're within 10 years of retirement or simply prefer sleeping well at night, Coca-Cola's predictability and modest valuation make it the rational choice. The juicy dividend helps, too.

• When you have a long-term investing horizon of 10+ years and don't mind some volatility along the way, Monster becomes the obvious choice. It's not cheap and there's no dividend, but great growth stocks like this one can be worth a premium price.

• And if your portfolio doesn't fit neatly into either category, maybe you should just buy some Coke stock and some Monster shares and call it a day. Both stocks should serve you well in different ways.
  
  

Should you invest $1,000 in Coca-Cola right now?

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Monster Beverage. The Motley Fool has a disclosure policy.