Monster Beverage Lawsuit Much Ado About Nothing

Yesterday, Goldman Sachs (NYS: GS) removed Monster Beverage (NAS: MNST) from its conviction buy list. The market's reaction was another double-digit drop, like Monday's

Boy, a stock gets more than 20% cheaper for pretty much no reason and everybody decides it's suddenly a sell? Doesn't sound like Foolishness to me. 

I hate to say it, but this whole thing with the FDA and the lawsuit strike me as a non-issue. Though my heart goes out to the family for its loss, we don't even know for sure if the drink was the culprit, and I think it's safe to say that almost anything will kill you if you drink enough of it -- even water. Somebody, somewhere, somehow, has probably died from overdosing on Starbucks' (NAS: SBUX) coffee, but we've just never heard about it. And it'd be a lot easier, too, as a 16-ounce coffeehouse java has significantly more caffeine than the large 24-ounce Monster Energy cans the girl in question downed.


And let's not forget the slow and silent death from obesity that mainlining seemingly "safe" normal soft drinks can lead to. Which is why, by the way, I think Coca-Cola (NYS: KO) PepsiCo (NYS: PEP) , and Dr Pepper Snapple (NYS: DPS) are moving toward diet soft drinks such as Coke Zero, Pepsi Next, and Dr Pepper Ten. 

I don't mean to trivialize the death of an innocent. But I hardly think its fair to attack Monster for it. The cans already carry warning labels (unlike coffee) for children and those sensitive to caffeine, and the alleged victim was part of both discouraged categories (she was 14 and had an inherited heart condition). Also the 24-ounce can is bigger than the 16-ounce ones I much more commonly see in stores.

If energy drink manufacturers -- including Coke and Pepsi -- want a quick and easy way to appease lawmakers, I imagine getting rid of 24-ounce cans would be a relatively painless solution. (I know, I sound like Mayor Bloomberg.) Stricter voluntary labeling also wouldn't hurt consumers, or shareholders. 

A silver lining
My Monster concern -- pardon the pun -- has always been competition, a.k.a. barriers to entry, or lack thereof. As we've seen with tobacco, litigation tends to scare competitors away and leads to a more concentrated industry. We could see the same thing happen here with energy drinks, and that will benefit Monster and RedBull via pricing power.

Also, to the extent litigation hangs a cloud over the share price, that simply makes the company's $500 million share buyback plan  more potent. Think of the gains that U.S. tobacco shareholders have made from dividend reinvestment into historically undervalued tobacco stocks (though I think they're a bad value today). Dividend reinvestment and share buybacks make you richer as long as a stock is unfairly underpriced. 

And this is now the case for Monster, as it's a bargain. While Monster and Coke are both CAPScalls and share the same reasonable forward P/E, Monster has much better growth prospects as the company expands abroad.

Be forewarned, however, that Mr. Market may continue to unfairly punish Monster is the short term. What is cheap may become even cheaper. (Think U.S. tobacco in the late 1990's.) But for long-term investors it would not surprise me if Monster became a stock to retire on.

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The article Monster Beverage Lawsuit Much Ado About Nothing originally appeared on Fool.com.

Chris Baines has no positions in the stocks mentioned above. The Motley Fool owns shares of PepsiCo, Starbucks, and SodaStream and has options on Starbucks. Motley Fool newsletter services recommend Coca-Cola, Monster Beverage, PepsiCo, Starbucks, and SodaStream. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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6 Comments

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PhilipH

This article is fail. 5 people died - not just 1.

October 24 2012 at 12:30 AM Report abuse rate up rate down Reply
1 reply to PhilipH's comment
Virginia Kemp

All of those people didn't pop up until the girl with the preexisting heart problem died and parents decided to sue Monster. It is just another lawsuit people think they can jump on and make some quick cash. There is no proof that those people even kicked it right after drinking monster, just their families saying so. I drink more caffeine than that a day, but I have a teething baby at home and still have to be at work in the morning. I'm sure if the teenage girl was drinking coffee then died, her parents would be suing Maxwell House or something. This is nothing, but a quick cash scam lawsuit.

October 24 2012 at 7:55 AM Report abuse rate up rate down Reply
boricua0375

Not only this drinks are been abuse and making people use them to avoid sleep which i think is very dangerous. I know truck drivers that rather drink monsters to avoid falling as sleep on the wheel and keep going thru the whole day. I heard from youngsters taking pills and monsters and giving them a feeling of been super hyper or high like they call it. I believe this drinks should be control or out of the market.

October 24 2012 at 12:18 AM Report abuse rate up rate down Reply
1 reply to boricua0375's comment
Virginia Kemp

If every product that caused harm to people was controlled or not marketed then there would be no freedom of choice of what to buy. Every consumer should be smart enough to understand their limitations. "Should be" smart enough, but that is hardly ever the case.

October 24 2012 at 8:04 AM Report abuse rate up rate down Reply
Brian Edward Croner

I agree. Goldman Sachs blundered here. The caffeine in one Monster drink is 160 mg. Just Google it. http://en.wikipedia.org/wiki/Monster_Energy

If you have a health condition and you're not supposed to drink caffeine, you would know not to drink Monster. And if you have such a condition, Monster is one among many things that would kill you if you consume it.

If I were a lawyer, I'd be begging to represent Monster in this trial. It's a guaranteed court victory.

October 23 2012 at 11:33 PM Report abuse rate up rate down Reply
1 reply to Brian Edward Croner's comment
Virginia Kemp

Thank You for not being one of the people that buy into others stupidity.

October 24 2012 at 8:05 AM Report abuse rate up rate down Reply