Top Coffee Stocks for 2023

Top coffee stocks for the second quarter include Luckin Coffee Inc. (LKNCY), Restaurant Brands International (QSR), and Starbucks Corp. (SBUX). The share prices of all three have risen by more than 40% in the past year.

Coffee stocks, as represented by the S&P Consumer Discretionary Sector Index, have outperformed the broader market this year, rising 19% year-to-date, compared with a 9% gain for the Russell 1000.

Here are the top three coffee stocks with the best value, the fastest growth, and the best performance. All numbers below are as of May 23.

Best Value Coffee Stocks

These are the coffee stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows that you’re paying less for each dollar of profit generated.

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• Restaurant Brands International Inc.: Restaurant Brands International is a Canada-based holding company born out of the 2014 merger of Burger King and Tim Hortons, one of the largest coffee shops and restaurant chains in Canada. The company also owns Popeyes, the Louisiana fried chicken franchise. Net income rose 3% in the first quarter alongside revenue growth of 10% compared to the previous year. On May 10, Restaurant Brands said it would open its first Tim Hortons locations in South Korea sometime this year.
• J.M. Smucker Co.: J.M. Smucker is a manufacturer of packaged food products. It is best known for its fruit spreads, peanut butters, and shortenings and oils. For the quarter ended January 31, the company's U.S. retail coffee sales grew by 11% but unfavorable mix caused segment profit to drop 4%. J.M. Smucker has increased its quarterly dividend every year for the past 20 years.
• Starbucks Corp.: Starbucks roasts and sells its own brand of specialty coffee. The company operates retail locations around the world and sells whole-bean coffee through various channels. Starbucks also offers other beverages, food, and a focused selection of merchandise.

Fastest Growing Coffee Stocks

These are the top coffee stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and most recent quarterly YOY earnings-per-share (EPS) growth.

Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 1,000% were excluded as outliers.

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• Dutch Bros Inc.: Dutch Bros operates drive-through shops that sell coffee, tea, soda, and energy drinks. The company's net loss shrank by 42% in the first quarter while total revenue grew 30%. Dutch Bros opened 42 new company-owned shops in nine states in the same period. Note Dutch Bros doesn't have an EPS growth figure in the table above because the company reported a net loss per share in the most recent quarter.
  
• Starbucks Corp.: See company description above.
• J.M. Smucker Co.: See company description above.

Coffee Stocks with the Most Momentum

These are the coffee stocks that had the best returns or smallest declines in total return over the past 12 months out of the companies we looked at.

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• Luckin Coffee Inc.: Luckin Coffee is a Chinese coffeehouse chain. The company's net income increased 28-fold year-over-year in the first quarter while revenue increased 85%. The company, capitalizing on the end of China's strict zero-Covid policy, opened more than 1,000 new stores in the quarter and expanded its international footprint with its first two Singapore locations.
• Restaurant Brands International Inc.: See company description above.
• Starbucks Corp.: See company description above.

Trends in Coffee Stocks

The global coffee market is expected to post consistent growth over the next five years. Research firm Mordor Intelligence forecasts a compound annual growth rate (CAGR) of 4.65% from 2023 through 2028. This growth comes in the face of headwinds created by climate change and low crop productivity.

The coffee market has seen a shift in consumer mindset toward sustainably sourced ingredients and environmentally friendly business models. That has increased demand for coffee that's certified organic or fair trade, a trend that is likely to continue as consumers become more concerned about climate change and its economic impacts.

The coffee industry has also seen growing demand for single-serve brewing machines, a trend that's likely to continue and drive future product development.

Risks of Investing in Coffee Stocks

While coffee is a major global industry, coffee-related stocks are not without some inherent risk.

On a larger scale, the coffee industry is subject to shifts in commodity prices and availability. Weather events and, in particular, climate change could pose a long-term risk to the viability of coffee producers.

Many of the largest coffee-producing countries in the world are in Latin America and Asia, which are likely to be heavily impacted by climate change. Coffee companies may find it increasingly hard to source beans from these regions.

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As of the date this article was written, the author does not own any of the above stocks.