One of the big news items out during Wednesday’s after-hours session was Coca-Cola’s (NYSE: KO) purchase of a 10% stake in Green Mountain Coffee Roasters (NasdaqGM: GMCR).
Dow component Coca-Cola, the world’s largest beverage maker, will pay $1.25 billion to K-cup giant Green Mountain in a deal that will make Coke products among the featured items in Green Mountain’s Keurig Cold platform. Keurig Cold, Green Mountain’s upcoming rival to SodaStream (NasdaqGM: SODA) products, will debut next year.
The news sent shares of Coca-Cola up 1.4% during Wednesday’s after-hours session, an uncommon move for the normally sleepy shares, but the real news was the 45% surge notched by Green Mountain, enough to take the stock to a new all-time high.
Although Green Mountain is a member of the NASDAQ 100 and the PowerShares QQQ (NasdaqGS: QQQ), news of the company’s tie-up with Coca-Cola has the potential to benefit another ETF: The PowerShares Dynamic Food & Beverage Portfolio (NYSEArca: PBJ).
Unlike many of the most widely held consumer staples ETFs, PBJ is not cap-weighted. Rather, it is a smart beta ETF that weights its 30 holdings based on price momentum, earnings momentum, quality, management action, and value. [This Staples ETF is Ready to Pop]
That has resulted in a top-10 lineup where Coca-Cola and Green Mountain are the sixth- and ninth-largest holdings, respectively. The stocks combine for 8.2% of the ETF’s weight.
That should be enough to mean a decent day awaits PBJ if Green Mountain trades up 40% or more Thursday. News of the Coca-Cola/Green Mountain deal comes as staples stocks and ETFs have struggled to start 2014. PBJ along with its cap-weighted rivals are down about 7% year-to-date, confirming the laggard status of the staples sector in 2014.
On an anecdotal level, the Green Mountain news is important to PBJ because the ETF has a 13% weight to consumer discretionary stocks, over a third of which is allocated to Starbuck’s (NasdaqGM: SBUX). Shares of the world’s largest coffeehouse operator have plunged 10% this year as once downtrodden coffee futures have surged. [Brazil Drought Jolts Coffee ETNs]
PowerShares Dynamic Food & Beverage Portfolio
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of Coca-Cola and QQQ.