Analyst Upgrades

• Google (GOOG) to outperform from neutral at Wedbush.
• Nike (NKE) to buy from neutral at UBS.
• Apollo Group (APOL) to market perform from underperform at FBR Capital.
• JDSU (JDSU) to overweight from neutral at Piper Jaffray.
• NetApp (NTAP) to overweight from equal weight and Verigy (VRGY) to equal weight from underweight at Barclays.
• RSC Holdings (RRR) to outperform from neutral at RW Baird.
• Exelon (EXC) to buy from hold at Jefferies.
• Aon (AON) and Willis Group (WSH) to outperform from market perform at Keefe Bruyette.
• BMC Software (BMC) to outperform from neutral at Cowen.

PepsiCo, Inc. (PEP) is buying Russian dairy and juice maker Wimm-Bill-Dann in a deal valued at about $5.4 billion, as reported in the Wall Street Journal.

Pepsi has set a long rage goal of reaching $30 billion in annual sales of health-oriented drinks and snacks by 2020. This deal will increase annual revenue to $13 billion from its present $10 billion.

Monday morning, Coca-Cola (KO) announced that it will distribute some drinks that are made by Dr Pepper Snapple Group (DPS). Coca-Cola will now distribute Dr Pepper and Canada Dry ginger ale in the United States and will distribute some drinks in Canada.

These beverages were distributed by Coca-Cola Enterprises, but that company is being acquired by Coca-Cola. The new agreement replaces Coca-Cola Enterprise's original deal with Dr Pepper.

Coca-Cola's Q3 earnings of 83 cents per share beat the First Call Q3 EPS consensus estimate of 82 cents per share, and, of course, Wall Street drove the shares lower on the morning of the announcement.

Most likely, the above selling stems merely from short-term institutional investors (IIs) exiting the stock, which is why I'm reiterating my Buy rating for The Coca-Cola Company (NYSE: KO), first recommended on February 15, 2009 at a price of $42.68.

As a Coca-Cola (NYSE: KO) shareholder, I was quite unnerved by recent talk centering on the issue of a soda tax. I'm sure PepsiCo (NYSE: PEP) shareholders were likewise frightened. According to Bloomberg, President Barack Obama is apparently open to the concept. In theory, funds generated from such a tax could be used to help defray the costs associated with a new health-care paradigm.

Besides raising money, what would be the justification behind such a governmental strategy? Well, excess sugar consumption can be dangerous. It can lead to all kinds of complications. You know the drill: obesity, diabetes, etc. When health issues like those rise, the cost of health care increases as well.

Coca-Cola Enterprises (NYSE: CCE), the big bottler for Coca-Cola (NYSE: KO), and a competitor of both PepsiCo (NYSE: PEP) and Pepsi Bottling Group (NYSE: PBG), is trying, like every company out there, to grapple with the recession. Sure, sodas and waters might seem like an attractive business to be in since people will still buy them in a down economy, but make no mistake about it -- Coca-Cola Enterprises needs to be on top of its game to protect those margins.

This leads me to this: According to Beverage World, Coca-Cola Enterprises wants a little more efficiency in its system. What corporate structure doesn't, right? So, management is taking a fresh look at the supply chain and the packaging it uses. Already, the company has shed 1,000 jobs and combined some units. Becoming leaner and working in a smarter fashion is key to keeping the bottom line steady and, hopefully, growing. It's only part of the picture, though. The logistics of distribution should be looked at, don't get me wrong. That obviously is the bottler's main function. Marketing, however, has to be stepped up as well. And that's Coca-Cola's job.

This post is one of six articles on beverage-related stocks. Here are five other investment ideas to sip on.

Each month in The Forbes International Investment Report, editor John Christy interviews top global stock managers. Here, Lou Gerken of Gerken Capital Associates eyes a favorite beverage play from Latin America.

The money manager explains, "Investors should take heart that there are companies they can invest in at very low valuations in emerging markets. And in the particular case of Latin America, many have U.S.-listed ADR's that have plenty of liquidity and are very accessible and cost-effective to buy.

"We think that Mexico is probably the best positioned Latin American country from a risk perspective because, obviously, with 86% exports to the U.S. it's very reliant on the U.S., but it's still seeing very healthy internal growth irrespective of what's going on in the U.S.

"A company that we like there is FEMSA (NYSE: FMX). It produces, markets and distributes Coca-Cola, Dos Equis, Tecate Beer and a lot of other beverages across Latin America. It also operates something that's very comparable to our 7-Eleven stores.

"They're called OXXO convenience stores. Very strong sales and EBITDA growth, despite the presumed slowdown that's been occurring as it relates to the U.S.contagion effect,and valued very attractively at 8 times EBITDA."

Steven Halpern's TheStockAdvisors.com offers a daily look at the latest market commentary and favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.

Talk about a tough time in the markets. Between the financial crisis and oil prices rising on an almost daily basis, with the Fed damned if it raises rates and damned if it doesn't, the floods in the Midwest are now threatening to make a trip to the supermarket much more expensive. Yes, break out the coupons and pray for sales, because, according to The Wall Street Journal [subscription], food prices are destined for one direction: higher. That's because a lot of farmland has been damaged, throwing the supply-demand dynamic into chaos.

What does this mean for investors? Look for potential pressure on the stocks of companies such as Coca-Cola (NYSE: KO), PepsiCo (NYSE: PEP), Kraft (NYSE: KFT), Kellogg (NYSE: K), General Mills (NYSE: GIS), and Hershey (NYSE: HSY). I happen to own Coke, and I've heard the news reports talking about how higher corn prices will affect Coke and Pepsi because they use corn syrup as an ingredient for their sodas. It's also been pointed out by others that PepsiCo owns Frito-Lay, and since that company manufacturers salty snacks such as Doritos and Tostitos (I love them both), corn prices will also have an impact on that division.

If you're a trader, be wary. We might be in for a rough ride this summer with not only the stocks I've mentioned here, but in a general sense. Since I own Coke, I've been acutely aware of the pullback experienced in that stock as the external pressures surround it. As I write this, the stock is trading at $54.27. The shares were over $65 during their wonderful stay at the 52-week-high suite. So, yes, buyers with short-term mentalities must be wary. However, long-term investors should look upon any pullbacks as potential opportunities for some of these food-selling companies. If you don't intend to trade, then adding to a Coke or Pepsi position might make sense.

Disclosure: I own Coke; positions can change at any time.

So here's the deal: soda sales have been on the decline as consumers flock to better-tasting, ostensibly healthier, more "natural" beverages like Vitamin Water, which is owned by Coca Cola (NYSE: KO).

According to Beverage Digest, U.S. soda sales in major retail channels overall declined 3.5% in the first quarter, and convenience-store sales dropped fell 4.2%.

How does the soft drink industry plan to combat the trend? According to the Wall Street Journal(subscription required) , "To win back sales, several Coca-Cola and Pepsi bottlers are conducting pilot tests on a variety of bottle sizes they hope will appeal to consumers put off by the 20-ounce bottle or looking for a cheaper option to cushion the blow of high food and energy prices."

I'll be shocked -- shocked -- if this does anything to boost soda sales. Soda sales are declining for a very good reason: soda is bad for you and people now have great-tasting alternatives. At the risk of being alarmist, I think that soda sales -- at least in the United States -- are in a permanent state of decline. I think Coke knows that: they saw the future and bought Vitamin Water.

Coca-Cola Co. (NYSE: KO) really needs to get things going in the North American territory. If you take a look at Coke's latest earnings report, you'll see that unit case volume moved up 1% for the fourth quarter, and down 1% for the entire fiscal year. That's well below the 6% growth in volume experienced overall. It's no wonder that the Associated Press highlighted the problem in North America in a recent article on comments made by Coke's COO Muhtar Kent (he will be the new CEO starting July 1) at a conference in Boca Raton, Florida.

Kent mentioned Coke Zero and the VitaminWater brand -- which Coke gained after acquiring Glaceau last year -- as being two key beverages to leverage to drive growth. They will probably help. I recently tried some of that VitaminWater stuff the other day -- not bad, although I suppose its appeal goes beyond the taste factor, as it basically relies on the consumer feeling healthier after drinking it (at least in terms of perception).

PepsiCo (NYSE: PEP) reported Q4 and full-year earnings today, and the Street liked what it saw. Personally, I'm a fan of Coca-Cola (NYSE: KO), mainly because I own the stock -- well, that's pretty much the only reason, since I actually prefer Pepsi's soda over Coke's (although I do like Diet Coke best of all). As of this writing, it's up about 5%.

Net revenue grew 17% for the fourth quarter and 12% for all of 2007. That's great double-digit growth, but the bottom line actually declined 29% in the fourth quarter and rose a flat 2% for the full year. That was on a GAAP basis. Excluding various items, net income actually grew 8% in Q4 and 13% in 2007. Full-year operating cash flow jumped 14%, and it was more than enough to cover capital spending and the blue-chip dividend (the latter of which is a key reason why investors put this stock on buy, hold, reinvest, and forget!).

Snack volume -- remember, Pepsi owns the tasty Frito-Lay portfolio and the Quaker brand -- grew 6%, while beverage volume expanded by 4%. Pepsi expects higher operating cash flow for fiscal 2008 -- $7.6 billion versus the $6.9 billion generated in 2007 -- and it is planning to continue share repurchases. Yes, I suppose I'd rather you buy shares in Coke since I own them, but truth be told, investors will probably do well owning either beverage company (I do concede that I envy the Frito-Lay asset).

Disclosure: Steven Mallas owns shares in Coke, and might buy more at any time.

The cola wars between Coca-Cola (NYSE: KO) and Pepsi (NYSE: PEP) that consisted of a high-profile battle for carbonated supremacy are quiet for now and, according to some experts, it's hurting the industry.

Some industry experts predict that soda sales will decline 1% per year for the next ten years. The accuracy of such a forward-looking prediction aside, it puts a lot of pressure on the soda companies.

Coke responded with its high-profile acquisition of Glaceau, the maker of VitaminWater, and Pepsi is preparing the launch of Tava, "An Inspired Sparkling Beverage" promising "Zero Calories. Zero Caffeine. Zero Worries." The packaging looks slick and the flavors -- Tahitian Tamure, Mediterranean Fiesta, and Brazilian Samba -- certainly sound enticing. The product will launch in the first half of 2008, but Pepsi investors should be wary of putting too much faith in it. A large percentage of new beverages fail to catch on with consumers -- Remember Crystal Pepsi, Pepsi Blue, and New Coke?

Maybe they'll be able to compensate for the decline in categories like energy drinks and vitamin-enhanced water -- but investing in Coca-Cola when you think Coke is headed for a long decline seems silly -- especially given that the stock hit a multi-year high on Friday.

With the decline -- and expected continuation of the decline -- in soft drink sales, you also have to wonder about Jones Soda's (NASDAQ: JSDA) prospects. The company has its own serious internal problems, and trying to make a comeback in a declining industry could prove too much for it to handle.

Perhaps big new marketing campaigns and a rebirth of the cola wars can help brighten soda's prospects -- but if the decline is caused by factors like increasing health-consciousness and a preference for noncarbonated drinks, it might just be a big waste of money.

Hansen Natural (NASDAQ: HANS) implied volatility Flat as HANS near record high. HANS markets and distributes beverages. HANS has a market cap of $4.69 billion. Goldman Sachs says "we continue to be optimistic about the company's prospects for the full-year and into 2008 based on; 1) distribution benefits from the Anheuser Busch (NYSE: BUD) agreement, and 2) the positive early read on the newly launched Java Monster." HANS October option implied volatility of 43 is near its 17-week average according to Track Data, suggesting non-directional price risk.

Cott (NYSE: COT) volatility Elevated as COT sells off 18% on lower guidance. COT, a supplier of retailer brand beverages, is recently down $1.89 to $8.27.COT lowered financial guidance, citing weaker than expected volumes and higher input costs. BMO Capital Markets says "if there is good news, it is that some degree of the profit warning may already be priced into the share price." COT announced on 4/13/07 "COT has responded to interested parties that have approached the Company, and is exploring the potential benefits of participating in possible industry consolidation." COT October option implied volatility of 56 is above its 26-week average of 40 according to Track Data, indicating larger price fluctuations.

Daily Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

If your coffee-break companion prefers a root beer to a iced latte, he or she may soon be out of luck. Starbucks (NASDAQ: SBUX) is taking Jones Soda (NASDAQ: JSDA) off its shelves, after stocking the soft drink company's root beer and black cherry beverages since March 2004 in the U.S. and since 1999 in Western Canada stores. The pops/sodas/cold drinks (depending on your region) will be pulled by the end of June.

A SBUX spokesperson noted that "[Jones] has been a very good partner, but we decided to move in a different direction." In a less vague statement, the company said it intends to use the extra refrigerated space -- now made vacant by the elimination of Jones products -- to chill additional cold-food offerings for Starbucks patrons.

Jones Chief Executive Peter van Stolk noted that "We are working with [Starbucks] . . . and we will support them in many ways." He also noted that the two companies, both headquartered in Seattle, have a "relationship that we will work on building," asserting that "We are good partners."

As for the bottom line, van Stolk opined that its exclusion from the Starbucks chain will not severely impact revenue, and a Stifel Nicolaus analyst said that sales in SBUX stores probably represented less than 3% of total Jones sales. An analyst with ThinkEquity Partners, however, was quick to say today's news "is certainly not favorable . . . now we have a shrinking situation [for Jones Soda]."

In early trading, JSDA shares have dropped 5.7% after a loss of nearly 4% in Wednesday's session.

So much for keeping up with the Jones.

Beth Gaston Moon is an analyst at Schaeffer's Investment Research.

In titling this post, I was going to go with the inevitable pun of "Zero being The Coca-Cola Company (NYSE: KO) Hero" but, unfortunately, The Wall Street Journal beat me to the punch. As consumers move away from soda and toward more healthful premium beverages (such as Vitamin Water, my personal favorite), Coke has had surprising success with Coke Zero, a zero-calorie version of Coke which apparently tastes less like poison than regular Diet Coke. According to Coca Cola Chairman and CEO E. Neville Isdell, the initial success of Zero makes it Coke's most successful new product launch in 20 years.

As a young consumer, I believe that Coke Zero's success is largely a function of slick marketing campaign. They've actually managed to make diet soda cool. The slick ad campaign, which included slick, GQ-esque ads, in addition to funny ads that invited readers to sign up for a class-action lawsuit suing Coke Zero for tasting too much like regular Coke.

As beverages from companies like Jones Soda gain in popularity and cache, the traditional soft drink companies will need to revitalize their images. Coke has done just that with Coke Zero and they will probably continue to experience success.

More Vitamin Water news

Beth Gaston Moon: High school vending machines getting more eclectic
Zac Bissonnette: PepsiCo plans a lower-calorie Gatorade
Jonathan Berr: Coke, Pepsi thirst for profits from bottled water
Zac Bissonnette: Experts doubt Snapple will satisfy Coke
Zac Bissonnette: Will Coca-Cola gulp down Snapple?
Joseph Lazzaro: Coke's catching up in the health drink segment
Zac Bissonnette: Coke swallows Vitaminwater
Zac Bissonnette: Coke wants vitamin water
Sarah Gilbert: Fuze acquisition pits Coke v. Pepsi in ritzy juice war