Why is Coca-Cola So Hot on Keurig Green Mountain?

Coca Cola is upping its stake in quick brew beverage company Keurig Green Mountain.

May 13, 2014 at 1:00PM
Take The Long View

The Dow Jones Industrial Average (DJINDICES:^DJI) was up 21 points as of 1 p.m. EDT Tuesday, holding steady for what could be another closing record high

Dow component Coca-Cola Company (NYSE:KO) and specialty coffee maker Keurig Green Mountain  (NASDAQ:GMCR) respectively shot higher by 0.9% and 9.7%.

The gains came on news that Coca-Cola is increasing its previously announced 10% ownership stake in Keurig Green Mountain to 16%. This will make Coke the largest shareholder in the manufacturer of the Keurig coffee makers, with about 26 million shares.

Following the romance


Before we dive into why Coke is so smitten with the Keurig (the branded single-serve beverage product), let's briefly look at how this romance evolved over the past few months. 

  • In February, Coke announced it would buy 10% of the company then known as Green Mountain Coffee Roasters for $1.25 billion.
  • Simultaneously, Coke agreed to make the company the exclusive partner to produce and sell single-serve, pod-based versions of Coke's flagship brands.
  • Today, Coke announced in a regulatory filing that it was increasing its stake in the company to 16%.

Why has Coke fallen head over heels?
Coca-Cola is a massive company. It does business in every corner of the world. Short of adding a second faucet for Coke in kitchens globally, the growth for the company's flagship brands is fairly limited.

Enter Keurig Green Mountain. For Coke, the Keurig device is a new channel to bring Coke, Diet Coke, and its other drinks into the household. It's about as close as the soda giant will likely ever come to installing that second faucet.

This investment could very easily prove to be a multibagger

Coke Featured

For Keurig Green Mountain, bringing on a strategic partner like Coca-Cola mitigates many of the core risks the company faces, as well as supercharges the potential upside. 

Most significant is Coke's global brands coming exclusively to the Keurig 2.0, the next-generation machine slated for launch in Keurig Green Mountain's fiscal 2015. This new device will brew cold beverages, as well as the traditional coffee and tea. 

Coke also brings decades of global experience in markets thus far untapped by Keurig Green Mountain, which so far only sells its products in the U.S. and Canada. Long term, the company knows that real growth will come by going international. it should be able to leverage Coke's distribution network, as well as its on-the-ground knowledge of doing business in countries across the globe. 

For a deeper dive into these benefits, click here.

What happens next?
First and foremost is the launch of the Keurig 2.0. We should all expect to see heavy cross promotion between Coke and Keurig Green Mountain, with Coke and Diet Coke featured prominently. When the rubber hits the road, consumers must be willing to buy this new system. If the launch flops or in any way disappoints, expect the stock to suffer significantly.

That said, consumers have fallen in love with the original Keurig system for brewing coffee, and as a stand-alone business the international opportunity remains strong. So for the long-term investor, this should provide some comfort. That said, the company currently trades at over 34 times trailing 12 month earnings -- so there is significant expectations for future growth baked into the valuation.

And who knows, maybe Coca-Cola will continue buying shares, and investors in the company can sit back and enjoy days like today.

Will this stock be your next multibagger?
Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks 1 stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

For more trending investing and business news, Like Jay on Facebook by clicking here!

Jay Jenkins owns shares of Keurig Green Mountain. The Motley Fool recommends Coca-Cola and Keurig Green Mountain. The Motley Fool has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

Something big just happened

I don't know about you, but I always pay attention when one of the best growth investors in the world gives me a stock tip. Motley Fool co-founder David Gardner (whose growth-stock newsletter was rated #1 in the world by The Wall Street Journal)* and his brother, Motley Fool CEO Tom Gardner, just revealed two brand new stock recommendations moments ago. Together, they've tripled the stock market's return over 12+ years. And while timing isn't everything, the history of Tom and David's stock picks shows that it pays to get in early on their ideas.

Click here to be among the first people to hear about David and Tom's newest stock recommendations.

*"Look Who's on Top Now" appeared in The Wall Street Journal which references Hulbert's rankings of the best performing stock picking newsletters over a 5-year period from 2008-2013.