Energy Drink Stocks: Who is At Risk? KO, PEP, MNST, REED & JSDA

On Monday, energy drink stock Monster Beverage (NASDAQ: MNST) was sinking after an article appeared in the New York Times reported that five people may have died over the past three years after drinking Monster Energy with the news also appearing to impact other small cap beverage stocks like Reed's, Inc. (NASDAQ: REED) and Jones Soda Co. (PINK: JSDA) plus its worth remembering that softdrink giants like The Coca-Cola Company (NYSE: KO) and PepsiCo, Inc. (NYSE: PEP) have also gotten into (or have tried to get into) the energy beverage business. On the other hand, one also has to be skeptical about anything the New York Times produces on this matter as its important to remember that softdrink makers like The Coca-Cola Company and PepsiCo, Inc. are increasingly on the radar screens of the food police (like the NY Times) and trial lawyers who would love to go after them (like they did with the tobacco industry) for their sugary caffeinated beverages on health grounds. Nevertheless, here is a quick look at energy drink stocks Monster Beverage (MNST) Reed's, Inc. (REED) and Jones Soda Co. (JSDA) and what risks they pose to investors:

Monster Beverage (NASDAQ: MNST). A maker of energy drinks, natural soft drinks and fruit drinks, Monster Beverage had around a third of the $31.9 billion energy drink market as of earlier this year. According to the New York Times, there has been a lawsuit brought by the mother of a 14-year-old girl who died last December from a heart arrhythmia after drinking large cans of Monster Energy on two consecutive days. However, the New York Times was also forced to concede that its not known if other factors like alcohol or drugs were at play nor do the reports prove any link between Monster Beverage’s Monster Energy drink and the reported deaths or other health problems. Nevertheless and on Monday, Monster Beverage sank 14.2% to $45.73 (MNST has a 52 week trading range of $40.88 to $83.96 a share) for a market cap of $8.07 billion plus the stock is down 1.1% since the start of the year and up 34.8% over the past five years. Moreover and with Monster Beverage having some $870.23 million in cash and short-term investments on its balance sheet at the end of June (plus insurance to cover lawsuits and product liability claims), there are probably plenty of lawyers just salivating at the prospect of getting a piece of that – meaning the lawsuit mentioned by the New York Times is far from the last one that will no doubt be brought against the company.

Reed's, Inc. (NASDAQ: REED). As a developer, manufacturer, marketer and seller of natural non-alcoholic and new age beverages, candies and ice creams, Reed's, Inc. is not exactly an energy drink stocks. Nevertheless and on Monday, Reed's, Inc. fell 2.01% (the second worst non-OTC beverage stock performer after Monster Beverage) to $7.82 (REED has a 52 week trading range of $1.10 to $8.82 a share) for a market cap of $87.99 million but the stock is still up 604.5% since the start of the year and up 12.5% over the past five years. A quick look at Reed’s portfolio reveals that its only real energy drink is its Natural Energy Elixir - a next generation energy drink infused with all natural ingredients that incorporates ginger, green tea, goji, jiaogulan, camu camu, ginseng, L-Theanine and B vitamins. That one drink is not a reason to panic. Hence, I suspect that some investors may have overreacted if they sold Reed's, Inc. on Monday over the Monster Beverage news.

Jones Soda Co. (PINK: JSDA). A developer, producer, marketer and distributer of a range of beverages, Jones Soda offers Jones Soda (a carbonated soft drink), Jones Zilch (with zero calories), WhoopAss Energy Drink (an energy supplement drink) and WhoopAss Zero Energy Drink (with zero sugar). Hence and on Monday, Jones Soda fell 4.59% to $0.26 (JSDA has a 52 week trading range of $0.23 to $0.89 a share) for a market cap of $10.2 million plus the stock is down 31.6% since the start of the year and down 97.4% over the past five years. Jones Soda was delisted from NASDAQ about a month ago for trading under $1 and the company did not appeal the decision but there are signs that the company is turning around. Back in August, Jones Soda reported a 7% revenue rise to $5.3 million while its net loss of $459,000 was lower than the net loss of $1.8 million reported for the same period last year thanks to expense reduction efforts begun at the beginning of the year and "a more disciplined approach to growing revenue.” However and the last thing Jones Soda needs right now is for the energy drink business to be hit with bad publicity. Moreover and with just $2.5 million in cash on the books at the end of June, it does not exactly have deep pockets to fall back on or to pay off lawyers and their clients with.

The Bottom Line. So should investors be worried about energy drink stocks? Maybe as there are already congressional calls for greater regulation of the industry but that might just mean more disclosure on cans and bottles about what’s in the drink – not really a big deal. On the other hand, what should worry investors in Monster Beverage (MNST), Jones Soda Co. (JSDA), The Coca-Cola Company (KO) and PepsiCo, Inc. (PEP) but less so with Reed's, Inc. (REED) given its focus are the trial lawyers swopping in and trying to make a quick buck.