The sector boasts the best-performing stock on record, and looks poised for decades of strong growth. Rupert Hargreaves explains why, and highlights the companies poised to benefit
The Magnificent Seven group of technology stocks (Apple, Microsoft, Amazon, Nvidia, Meta Platforms, Tesla and Alphabet) have hogged the headlines in the past five years. But the performance of these firms pales in comparison to the best-performing stock of all time.
This business doesn’t produce anything nearly as complex as the microchips or artificial intelligence (AI) tools the world’s tech giants have spent billions of dollars developing. It simply mixes sugar and water, creates a brand and sells the drink. The company is Monster Beverage (Nasdaq: MNST). Over the past 30 years, the stock has returned almost 200,000%, turning every $10,000 invested into nearly $20m.
This is fascinating. An energy drink is made of sugar, water and caffeine; it may also contain a few other additives. There’s nothing special about it. What’s more, it isn’t a unique product. Go into any corner shop or retailer, and you’ll find shelves of different brands, in varying packaging, all essentially offering the same thing – caffeine, sugar and water. There may be some variation in additives, or each product may be aimed at a different segment of the market, but the basic ingredients remain the same.
So why do these products make such great investments? They seem to offer a unique combination of fat profit margins, robust free cash flows, and sensible capital-allocation policies.
Robust return on capital invested
The consumer-goods market is one of the most consistently profitable sectors, but it is also one of the most competitive. The cost of making products such as soft drinks, biscuits and shampoo on a large scale can usually be lowered thanks to economies of scale. And if you have a strong brand behind the item, it will have a degree of pricing power. That allows companies to propel prices higher to maintain profitability if costs rise. However, few companies in the space have real, global pricing power.
Coca-Cola is always cited as the classic example of a business with true pricing power that has maintained its edge for decades. But it is the exception, not the rule. Just look at Unilever, which recently announced that it intends to sell or spin off its ice-cream business, including the famous Magnum ice-cream brand, in an effort to improve margins and profitability. If Unilever, one of
