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Show SOFT DRINKS REMAIN ON GROWTH TRACK In general, worthwhile sales and earnings ear-nings achievements were recorded by most soft drink firms last year. More important, the progress has continued into early 1982, and at this juncture full-year full-year gains are anticipated. The ability of this industry to chalk up advances while a number of less fortunate for-tunate groups are overwhelmed by the persistent recessionary conditions is worthy of note. In terms of investment, the extraordinary financial performance perfor-mance obviously enhances the attractiveness attrac-tiveness of this industry's common stocks. SUGAR ISSUE Even though major beverage firms have allowed the use or combination of high-fructose syrup in the formulation of soft drinks, sugar remains a primary sweetner. This is true even though an estimated 20 percent of the soft drink market is oriented to artifically sweetened soft drinks. Thus the cost-availability problem of sugar, which in the past has been volatile, continues to be important to manufacturers of drinkssyrups in terms of the cost of goods and, of course, to their eventual profit levels. At present there is an excellent price structure and plentiful availability of sugar, which is naturally quite favorable lor near-term results for the soft-drink fraternite. In a similar vein, it should be noted that the major raw materials used in other sweetners are also in ample supply. CAFFEINE TOPIC Controversial issues have hit the soft drink industry in the past. For example, exam-ple, in the late sixties the use of cyclmates in beverages resulted in an. abrupt government ban. As a consequence, conse-quence, many firms were not only financially penalized with the loss of this sweetner but were also forced to reformulate their drinks with substitutes. Another substance was also brought into question, namely, saccharin. Its use, however, is still' permitted. More recently, a new marketing campaign raised potential health concerns regarding regar-ding caffeine. Considerable time will, of - course, be required to resolve this issue since medical evidence is thus far inconclusive. in-conclusive. Moreover, the FDA intends to allow ils continued use while additional addi-tional studies are carried out. On' balance, however, we do not foresee a ' rerun of the cyclamate fiasco of yesleryear. GROWTH PROMOTERS Looking ahead, we feel that the soil drink industry has the potential to continue con-tinue its expansion. Admittedly, unit volume growth in the U.S. has slowed, but the per capita consumption trends remain quite healthy. Furthermore, the "majors" aggressively ag-gressively pursue overseas soft drink business where emerging markets have promising potential. In addition, the companies have the benefit of several years of advancing profits, which have strengthened them financially. Several concerns, too, with substantial beverage interests have diversified into unrelated but optimistic fields. A good case in point is PepsiCo. Along with its substantial position in soft drinks, other corporate lines include food products, fast-food restaurants, transportation, and sporting equipment. equip-ment. INVESTMENT STRATEGY The Research Department of Bab-son's Bab-son's Reports from the recent study of the soft drink field has concluded that its prospects are bright. Hence, we are advising the Babson clientele to maintain main-tain portfolio commitments in this sector sec-tor for the capital appreciation potential. poten-tial. Indeed, two common stocks of this type are currently favored buy candidates. can-didates. Purchase is recommended of Coca-Cola near 35, conservative grade, buy limit 36, PE 9, yield 7.2 percent. Buy advice is also featured on PepsiCo Pep-siCo near 39, buy limit 43, average grade. PE 11, yield 3.7 percent. Both issues are traded on the New York Stock Exchange and offer exceptional long-term appreciation possibilities. |