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You don't often get a new opportunity to buy into one of the oldest brand names around -- let alone one with a unique taste that millions enjoy.
And that's why a lot of stock market pundits are saying Dr Pepper could add some fizz to your portfolio.
After all, the Dr is America's oldest major soft drink; the concoction of 23 flavors was first served in 1885, before Coke and Pepsi. It lost the battle with the cola giants long ago, but the name remains ubiquitous.
But now, with Dr Pepper Snapple Group (DPS, news, msgs) spun off from Cadbury (CBY, news, msgs), you can buy the Dr along with a stable of well-known drinks that includes the other big uncola, 7UP.
As investments, new stocks backed by brand names often prosper. Witness MasterCard's (MA, news, msgs) huge 2006 launch and, to a lesser extent, Visa's (V, news, msgs) release this year.
Plus, spinoffs tend to do well. Shares sell off initially, dumped by owners of the parent company who don't want to hold on, then pick up once the selling pressure abates.
Dr Pepper shares have fulfilled the first part of that equation, dropping 7% since they hit the market in April.
At just over $25 a share now, they look cheap, trading for under 13 times estimated 2008 profits of $2 a share, compared with the 18 times earnings that rivals Coca-Cola (KO, news, msgs) and PepsiCo (PEP, news, msgs) go for, according to one big Dr Pepper Snapple fan, Andrew Bary of Barron's.
But don't be fooled by comparisons of this company with those two giants, which deliver for shareholders year after year. The Dr is not in their league. We're long past the days when everyone wanted to be a Pepper, as the old advertising jingle goes.
Dr Pepper lovers, have no fear: The sodas from this new stand-alone company taste the same.
But investors, beware: This stock will likely turn sour in your stock portfolio. Cadbury sold Dr Pepper Snapple for good reasons. At least five of them.
Reason No. 1: No international presence
Look at the iconic U.S. soft-drink and snack brands, and you see a common theme. The companies behind them are reaching to emerging markets for growth because U.S. markets are overcrowded and growth in this country is meager.PepsiCo is rewriting snack food recipes to cater to local tastes in India and China. Bottler PepsiAmericas (PAS, news, msgs) is buying soft-drink companies to get exposure to emerging economies in Eastern Europe.
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Even the soft-drink king Coca-Cola is counting on emerging markets for growth. "That's where the population growth is. That's where the income growth is. And that's where the per capita consumption growth is," says David Kolpak, a food and beverage sector analyst at Victory Capital Management.
Now consider Dr Pepper Snapple's biggest shortcoming: no international presence. The foreign rights to two of its biggest brands, Dr Pepper and 7UP, are controlled by Coca-Cola and PepsiCo. Dr Pepper Snapple's only foreign sales come in Canada and Mexico, and they're minimal; 90% of sales are in the U.S.
Indeed, while Coca-Cola and PepsiCo turned trademark tastes into companies that are international behemoths, Dr Pepper has been a corporate hot potato. Beset with money woes in the 1980s, it went private, nearly became part of Coca-Cola and eventually wound up as part of Cadbury. That helps explain why the new company, with a market capitalization of just $10 billion, is just a 10th the size of Pepsi and a 13th the size of Coca-Cola.
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