Don't Drink the Bearish Kool-Aid on These 3 Outperformers

Monster Beverage Corp (MNST), Dr Pepper Snapple Group Inc. (DPS), and Kroger Co (KR) remain plagued by pessimism

Feb 6, 2015 at 3:00 PM
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The food-and-beverage sector has crushed it over the past year, yet many components remain under the radar. Of the 34 stocks under our "food and drink" umbrella, the average year-over-year return is 25.8% -- among the best of the sectors we track. Still, "buy" ratings have dwindled to 43% from 47% in the same time frame, and short interest represents nearly a week's worth of pent-up buying demand, on average.

Against this backdrop, we're going to take a glance at a trio of stocks with potential contrarian value: PowerShares Dynamic Food & Beverage ETF (PBJ) components Monster Beverage Corp (NASDAQ:MNST), Dr Pepper Snapple Group Inc. (NYSE:DPS), and Kroger Co (NYSE:KR).

MNST

MNST has added roughly 9% in 2015, and touched a record high of $122.27 on Jan. 28. The stock was last seen lingering in the $118.04 vicinity, yet option traders are growing bearish. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 50-day put/call volume ratio of 1.59 stands higher than 98% of all other readings from the past year.

Likewise, analysts are hesitant to jump on the bullish bandwagon, as seven out of 13 brokerage firms maintain tepid "hold" ratings. Likewise, the average 12-month price target of $122.60 is just a stone's throw from MNST's current perch. Should the security resume its quest for all-time highs, an unwinding of skepticism in the options pits, or a flood of upbeat analyst attention, could add fuel to Monster Beverage Corp's (NASDAQ:MNST) fire.

DPS

DPS flexed some fundamental muscle on Thursday, hiking its quarterly dividend by 17% and announcing another $1 billion stock-buyback plan. Dr Pepper Snapple Group Inc. (NYSE:DPS) is set to report fourth-quarter earnings before the open on Thursday, Feb. 12, and if recent history is any guide, the shares could be headed for record highs. DPS has moved higher in the session after each of its last five earnings report, averaging a single-day upside move of 3.1%.

Technically speaking, DPS has outperformed the broader S&P 500 Index (SPX) by more than 8 percentage points during the past three months, and touched an all-time peak of $80.04 on Jan. 28. However, just one of 12 analysts deems the equity worthy of a "strong buy" endorsement, and the consensus 12-month price target of $70.57 represents a discount to the stock's current perch of $78.24. Another solid earnings report could translate into a flood of upbeat analyst notes for DPS.

In addition, it would take more than six sessions to buy back all of the shorted DPS shares, at the stock's average daily trading volume. A stronger-than-expected report last week could also trigger a short-covering rally.

KR

After finally blowing past the $30 region in March 2013, KR has been virtually unstoppable, more than doubling in that time frame. In fact, the stock tagged a record high of $71.91 today, bringing its year-to-date gain north of 11.6%. However, the stock's 14-day Relative Strength Index (RSI) now stands at 82 -- in overbought territory, suggesting a short-term breather may be in the cards.

Still, KR's bullish bandwagon isn't at capacity. Five out of 13 analysts maintain lukewarm "hold" opinions, and short interest skyrocketed 21.7% during the most recent reporting period. Likewise, the stock's 10-day ISE/CBOE/PHLX 50-day put/call volume ratio of 0.38 registers in the 87th percentile of its annual range. Should Kroger Co (NYSE:KR) keep assailing new heights, a reversal in sentiment could propel the shares even higher.


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