3 Reasons To Buy Monster – And 1 Not To
With new cases of the coronavirus spiking in the US and worldwide .
With the already historic unemployment levels and job losses in recent months .
And with many Blue Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.
There are few safe places to invest today. And this number grows smaller every day this crisis lasts.
The key to continue compounding your investments and build wealth is to keep investing well over time.
This is a huge part of things.
But another huge part of this that few think of is losing as little capital as possible.
The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you achieve your retirement goals.
In recent articles I’ve shown you several stocks to avoid investing in…
- 1 Reason To Avoid AT&T And Its 7% Dividend
- 1 Reason To Avoid Daimler
- 2 Reasons To Avoid Kraft Heinz
- 1 Reason To Avoid Exxon
- 1 Reason To Avoid This 4.4% Dividend Payer
Today, I want to show you 3 Reasons To Buy Monster – When This Happens…
Monster Beverage Corporation (MNST) is a leader in the world’s energy drink market.
Some of its famous products are…
- Monster Energy
- Monster Ultra
- Java Monster
It’s based in Corona California. It has a $41 billion market cap. And it’s also a partner of Coca Cola’s. Which is reason #1 to consider buying its stock.
Monster Is A Partner Of Coca Cola
Coke owns 19% of Monster stock and Monster uses Coke’s powerful distribution and bottling network to get its products to the world.
This is a massive competitive advantage.
Coke’s bottling and distribution network is legendary.
This network – and the relationships with sellers that comes with it – is the largest single reason Coke came to dominate the worlds beverage needs.
It’s so powerful that many business schools at universities use Coke as a case study of a powerful and dominant company.
This competitive advantage allows Monster to grow rapidly around the world with little effort and cost… Which allows the company to earn huge profits and cash flows.
And this is reason #2 to consider buying Monster…
Monster Earns Huge Profits
Over the last decade it earned an average operating income margin of 30.1% per year.
I look for anything above 10%. Why 10%?
Because after evaluating thousands of companies over the last 14 years of my career I estimate fewer than 5% of all companies worldwide produce operating profit margins above 10% over extended periods.
This makes Monster a great operating business.
Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 18.6% per year on average.
I call this the “Cash Machine” metric.
I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above.
Monster surpasses my thresholds on both important metrics and that makes it an incredibly safe and valuable investment.
These profits also allow it to continually reinvest in operations to keep competitors away.
It achieves these profits largely because of its partnership with Coke and the use of its distribution network talked about above.
These huge profits allow Monster to have zero debt which is reason #3 to buy its stock.
Monster Has ZERO Debt
You almost never see large companies with zero debt anymore. But Monster doesn’t have any… As in none.
While it has $1.2 billion in cash on hand as of this writing.
Its able to do this due to the competitive advantage of working with Coke. And because of the huge profits and cash flows its business creates.
This makes Monster an extremely safe investment because there’s essentially zero chance of it going out of business. Even if its revenues drop to zero it will be fine because it has zero debt.
But what about its valuation? Is it cheap?
This is the only reason to wait to buy its stock…
Monster IS NOT Cheap
With the markets at or near all-time highs you’d expect a fantastic stock like Monster to be selling at an enormous valuation.
And it is.
As of this writing its P/E is 36.6.
Its P/CF is 38.2.
And its forward P/E is 31.
On all three metrics I look to buy investments below 20 to consider them undervalued.
This means, Monster is overvalued by a decent amount now.
And this means owning its stock gives you no margin of safety in investing terminology.
When you invest in stocks that have a margin of safety it makes the investment safer. And it also means you should expect to earn higher returns owning in the coming years.
The inverse of this is also true…
When you invest in a stock without a margin of safety it makes the investment riskier. And it also means you should expect to earn less owning its stock going forward.
With Monster being overvalued it makes the investment riskier. Even with the other wonderful things above.
If you’re looking for a solid, safe, stable, and enormously profitable investment to buy to Depression Proof Your Portfolio – consider investing in Monster. But only when it’s cheaper.
Click the links below to see the stocks we recommend to Depression Proof Your Portfolio and earn safe investment returns.
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- 3 Stocks To Depression Proof Your Portfolio – Stock #3
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.