Why I'm Finally Selling SodaStream

One environment just became too dangerous for the at-home soda machine maker.

Jul 15, 2014 at 4:20PM

SodaStream's (NASDAQ:SODA) business has had myriad issues for months now. Some are purely financial: Last quarter, it reported anemic sales growth and plummeting profit. The stock has repeatedly tanked as bad news added to the mix. Plenty of investors have already sold, and many who are holding have experienced major losses. In keeping with my dedication to the long-term view, I hardly ever advocate selling a stock, and don't do so lightly, but one straw has proven the final one for me.

Plus there's a bigger reason I'm selling the SodaStream stake in the Prosocial Portfolio I manage for Fool.com right now. This decision is about severe geopolitical risk -- and a nagging conscience.

Getting out of town
SodaStream, which makes at-home soda machines, is headquartered in Israel. Most Americans know the region's difficulties, but the situation has tragically escalated in recent days. With rockets hitting both sides, as of this writing Hamas turned down a cease-fire agreement, so Israel has resumed its own. Citizens on both sides are besieged with the worst violence in the area since 2012. Deaths and injury counts have been increasing.

Companies often do face geopolitical risk, but current events underline just how badly SodaStream's burdened with that problem -- simply being in the neighborhood is a dangerous thing.

There's no doubt about it: This particular angle has been a legitimate bone of contention ever since I included the company in the Prosocial Portfolio, which I've been building with socially responsible tenets in mind. Of all the stocks in the portfolio, SodaStream is one I've wrestled with regularly, because of this aspect.

It's not just me. Lots of socially responsible investors have been wondering how this situation fits into the ethical aspect of their investments.

The call for Israel stock divestment isn't new. In fact, last month, the Presbyterian Church pulled $21 million out of major companies like Hewlett-Packard and Caterpillar that they say are tied to the Palestinian occupation.

Protests and boycotts have escalated all over the world, too. Several weeks ago, U.K. retailer John Lewis pulled SodaStream products out of its stores altogether. On Sunday, Boston protesters reacted to the current troubles by gathering at Macy's, hoping to push the machines out of that store as well.

Some speculate that the reason PepsiCo hasn't taken a stake in SodaStream is its reluctance to be involved in the controversy.

Regardless of moral stance, public opinion regarding this high-profile issue is a significant risk.

Is the environment enough of a reason to sell?
You might ask why SodaStream showed up in my portfolio in the first place (and some people have). On a pure investment level, until recently it looked like an incredibly undervalued stock in a growth industry, particularly because it was a first mover in the space. Now, many wonder if the current challenges actually constitute a poor investment.

SodaStream boasts an environmentally friendly mission. Right now it claims it's saving the world from about 4 billion bottles. From my point of view, the environmental responsibility struck me as a particularly sharp extra-competitive edge beyond simply convenience and saving money at the register.

The soda-at-home device reduces waste. Not only does the practice reduce the amount of containers, it also cuts out pollution that results from transporting heavy products. SodaStream's environmentally friendly mission is one of the reasons spokeswoman Scarlett Johansson has stayed aboard despite the heated controversy.

There's an economic reason that SodaStream could be a force for positive outcomes in a difficult region. I had hoped maybe the presence of companies like SodaStream could bring some degree of peace.

The company employs many Palestinians, and working together can often bring people together. Some Palestinians have gone on the record saying that they need their job at SodaStream in order to support their family -- in other words, boycotts and divestitures could hurt them despite all our good intentions. (This article includes a short film about the complex situation in SodaStream factories.)

Yesterday, I hoped to find an updated management response to the current situation. I hoped I'd see a message on its website, an SEC filing, or some kind of public statement, revealing what's going on and if it's impacting SodaStream at all, even in the pure financial sense.

At the very least, shouldn't investors should be notified if it's impacting business in any way?

But how could it not be? This is a scary situation right now. It's easy for me to believe that both Palestinians and Israelis are not only afraid, but also worried about friends and family, as well as thinking about the situation in a sharper way than ever. Even in our own peaceful society, employees who are worried or stressed about a variety of situations hardly have an easy time being productive.

Moving on, but hoping for better times
I rarely sell stocks or recommend anyone to do so rashly. SodaStream has been under tons of pressure for a long time, and I was holding as I generally do.

From my point of view, the scale has now dipped precipitously in the wrong direction. I don't take a personal stand on who's right or who's wrong in Israel's conflict, although an inability to come to a cease-fire agreement certainly doesn't win much sympathy at the moment, as injuries and body counts grow. I have always thought the situation was intensely complicated and sad, and I simply wish for peace there.

I dearly hope we will someday see a better future in the region, when all parties will be able to resolve their conflicts. I had hoped that SodaStream could be part of that. As much as I believe in waiting for quality companies to turn around their financial fortunes even through times when other investors abandon them, I've decided I can't wait through this. It's time to walk away -- yes, unfortunately, at a loss. Sadly, that's a mild form of loss in the grand scheme of things.

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Alyce Lomax has no position in any stocks mentioned. The Motley Fool recommends and owns shares of PepsiCo and SodaStream. 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.

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