A reduced supply of coffee from Vietnam and Brazil—two of the world’s major coffee exporters—owing to bad weather and COVID-19 lockdowns, combined with rising fertilizer prices and global supply chain disruptions, has caused coffee prices to surge lately. However, we think technological advancements in coffee processing and growing demand for the beverage should benefit prominent coffee stocks Starbucks (SBUX) and Keurig Dr Pepper (NASDAQ:KDP). But which of these stocks is a better buy now? Read more to find out.Starbucks Corporation (NASDAQ:SBUX) and Keurig Dr Pepper Inc. (KDP) are two prominent players in the coffee industry. SBUX in Seattle, Wash., operates a multinational chain of coffeehouses where it retails, roasts, and provides its brand of specialty coffee, bottled coffee drinks, and a line of ice creams. The company also licenses its trademarks through licensed stores and grocery and foodservice accounts. In comparison, KDP in Plano. Tex., manufactures and distributes specialty coffee, brewers, soft drinks, juices, teas, mixers, water, and other beverages to retailers, bottlers and distributors, restaurants, hotel chains, office coffee distributors, and end-use consumers.
With COVID-19 pandemic lockdowns in Vietnam and uncommon drought and freezing temperatures in Brazil destroying coffee crops, rising fertilizer costs, and supply chain disruptions worldwide, coffee prices have surged to seven-year highs. While various efforts are being made to address the supply shortages, the introduction of automated brewery software and solutions, new flavors of coffee and its products, and better packaging should enable the companies to overcome input costs and profit from the continued rise in demand. Investor optimism in this space is evident in the iPath Series B Bloomberg Coffee Subindex Total Return ETN’s (JO) 15.1% returns over the past three months, versus SPDR S&P 500 Trust ETF’s (SPY) 5% gains. The global coffee market is expected to grow at a 2.8% CAGR between 2021- 2025. So, both SBUX and KDP should benefit.
But while SBUX has gained 0.7% in price over the past month, KDP has surged 1.5%. KDP is a clear winner with 22.8% gains versus SBUX’s 19.5% returns in terms of their past year’s performance. But which of these stocks is a better pick now? Let’s find out.