Cramer Pops Greenberg in the Gut

The cola wars never die. We just see the sudsy battles fought with new soldiers.

CNBC's Jim Cramer and Herb Greenberg faced off in a soft drink taste test yesterday afternoon. The challenge stemmed from an on-air dispute last week, with a bearish Greenberg questioning whether SodaStream's (Nasdaq: SODA  ) carbonated creations can match branded pop in quality.

The two squared off yesterday, sipping away at two samples of cola and two samples of ginger ale.

The spectacle couldn't have played out any better for SodaStream.

Both Cramer and Greenberg chose SodaStream's freshly made fizz over the Pepsi and Seagram cans that had just been purchased from the studio vending machine.

This would still have been a success for SodaStream, even if the company behind the popular water carbonation system hadn't gone 4-0 to sweep the series. It's just more publicity for the product -- and the stock. Shares of SodaStream hit a new all-time high within an hour of the live contest.

Coffee Clash revisited
If analysts breaking into a beverage taste test feels familiar, it's because we did the same thing last year when we pitted Green Mountain Coffee Roasters' (Nasdaq: GMCR  ) Keurig against Starbucks (Nasdaq: SBUX  ) Via instant coffee. The K-Cups had it all over Seattle's finest in that caffeinated battle.

Green Mountain and SodaStream are active Rule Breakers newsletter service recommendations. As a member of the growth service's analyst team -- and the one who originally recommended both investments -- I was tickled by yesterday's CNBC throwdown.

Why am I always recommending stocks that Greenberg goes on to bash? Perhaps even more problematic -- why am I seeing eye-to-eye with Cramer more and more these days?

Greenberg has now ripped into three of my newsletter picks, presenting bearish arguments for Green Mountain, SodaStream, and online dining reservations specialist OpenTable (Nasdaq: OPEN  ) . I have no doubt that Greenberg is the more accomplished analyst, but I've come out ahead on all three picks. They are up 793%, 46%, and 206%, respectively.

Pop life
I'm surprised that SodaStream came out ahead against branded competition. I love my SodaStream machine, but it's not always about taste. I think Diet Coke runs circles around SodaStream's diet cola. If anyone ever wants to fix a fight so SodaStream loses, go with diet cream soda. That stuff is rancid.

I continue to use my SodaStream machine because there are certain flavors it does amazingly well. I've also discovered that a squirt of Kraft's Mio in a glass of SodaStream carbonated water is a lot tastier than Mio's original intent as a flat water enhancer.

I'm also faithful to my SodaStream because I can serve it to my kids with a clear conscience. A serving of namesake brands from Coca Cola (NYSE: KO  ) or PepsiCo (NYSE: PEP  ) has three times the calories, carbs, and sugar -- and more than 10 times the sodium -- as SodaStream's CNBC taste-winning cola.

Carbonated profits
Shares of SodaStream have nearly tripled since their IPO pricing last year, and I'm sure that Greenberg would've preferred to battle it out over valuation than just a few blind sips.

SodaStream has the same characteristics that smoke out bears in droves. OpenTable, Green Mountain, and SodaStream all traded at sky-high multiples and were coming off secondary offerings at what seemed like lofty price points around the time that Greenberg began shaking his head.

These are valid knocks, but booming consumer acceptance is enough to silence the pundits.

SodaStream saw its revenue soar 50% in its latest quarter. Adjusted earnings popped 141% higher. The company has sold 1.3 million of its systems over the past two quarters, and that's a meaty trigger for higher-margin consumable sales of CO2 cylinders and flavored soda syrup in future quarters. SodaStream isn't cheap, trading for 44 times next year's earnings. However, it's hard to bet against the product's momentum.

Brisk sales long after the seasonally potent holiday quarter confirms that this isn't just some 2010 novelty. If Greenberg doesn't see that, he may as well keep wearing the blindfold he sported during yesterday's taste challenge.

Is SodaStream a fad or is it a real lifestyle changer? Share your thoughts in the comment box below.

The Motley Fool owns shares of PepsiCo, Coca-Cola, and Starbucks. Motley Fool newsletter services have recommended buying shares of PepsiCo, Coca-Cola, SodaStream International, Starbucks, OpenTable, and Green Mountain, as well as creating a lurking gator position in Green Mountain and a diagonal call position in PepsiCo. Motley Fool newsletter services have recommended shorting Green Mountain. 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.

Longtime Fool contributor Rick Munarriz is a fan of diet soft drinks and has owned a SodaStream maker since last year. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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  • Report this Comment On May 25, 2011, at 2:47 PM, jusayin wrote:

    The original Soda Stream machines were sold by Schwan's through home delivery. I sold them and a bunch of them. Of my 800 customers I sold to 400 of them. Within a year most had quit using them as they were a mess and more work than the savings were worth. Washing bottles, messes on the counter, storing CO2 etc. I still love the concept and maybe 25 years a go it was just ahead of it's time. Schwan,s owned that name so not sure how it is operating under that name?? All said my guess is retention will not be good but there are millions to sell to before that becomes an issue.

  • Report this Comment On May 25, 2011, at 3:03 PM, warrenzevon wrote:

    I think this company has enormous potential b/c it takes advantage of multiple long-term marketing/lifestyle trends: increasing focus on value-for-the money among consumers, green marketing, connoisseurship (sp?) at home, and the growing revolt against unhealthy ingredients used by the agribusiness oligopoly. In the wake of the financial crisis, consumers have made what seems to be a permanent change in philosophy and always look to save money (even if the underlying purchase is questionable). Sodastream also enjoys a green halo, as has been pointed out, because it bypasses the energy used to transport cases of pre-mixed soda. It also holds the promise of being higher quality, increasing the selection of soda flavorings for home users. Finally, it's a much more transparent alternative to drinking what a big company puts in the bottle. The only threat I see for investors is that Sodastream becomes big enough to be a takeover target before shareholders can get rich.

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