Soft drinks are set to sizzle this summer as temperatures rise, according to David Silver, an equity research analyst covering companies in the beverage sector with Wall Street Strategies, and John Faucher, a senior analyst at J.P. Morgan covering U.S. beverage stocks.
Both analysts predict emerging markets in Latin America and Asia Pacific will be the biggest winners.
Silver has his eye on Coca-Cola.
"Coke is a much bigger player in China, in India, in Russia... even into Africa now. And that's really where the growth is coming from."
But spiking U.S. temperatures this summer could also drive sales at home, the analysts said.
Faucher thinks Dr. Pepper Snapple Group will benefit the most from the hot weather, as it has the most U.S. exposure. Silver thinks Coca-Cola has the edge over Pepsi.
Record-breaking heat has already hit half the country in the past week. The National Weather Service is predicting sweat-inducing temperatures for the East Coast and Southeast states this summer.
Faucher, who has covered the beverage industry for J.P. Morgan since 1998, said both Coca-Cola and Pepsi, along with most consumer names, "have really lagged the market over the last few years." This has kept valuations relatively cheap and expectations low, he said, so the summer heat would be a "nice catalyst."
Despite Coca-Cola's recent push for price increases toward the end of the year, Faucher said prices are actually down year over year on the two-liter bottle.
He said prices will probably stay down until July 4, making the consumer happy and boosting sales for Coca-Cola.
With alcoholic drinks, Faucher said mainstream beer is by no means bouncing back, except for the high-end sector.
"That type of consumer, high-school degree or less, unemployment still remains slugghlishly high and that's negatively impacting beer volumes," Faucher said.
Unlike soft drinks, Faucher noted, alcoholic drinks aren't as highly correlated with the weather.
Silver thinks Boston Beer has a "unique niche market that continues to grow," despite relatively small growth in terms of volume in the past few quarters.
Molson Coors Brewing — Neutral — Price Target: $49
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