Green Mountain Makes it Peanut Butter Jelly Time for This ETF
February 6th, 2014 at 9:30am by Tom Lydon
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.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.