Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

PepsiCo the Perfect Buy-and-Hold Investment

Companies / Investing 2011 Nov 21, 2011 - 06:14 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleJack Barnes writes: If they aren't already, long-term investors should be digging up some solid defensive plays, like PepsiCo Inc. (NYSE: PEP).

Everyone is familiar with PepsiCo, one of the leading manufacturers and marketers of food and beverage products. And with a strong business model, steady bottom-line growth, and a healthy dividend, PepsiCo is one of those rare buy-and-hold investments.

Although its name is typically associated with soda, PepsiCo has developed a diversified product line that supports a steady revenue stream from more than just fizzy drinks. PepsiCo, through its Frito-Lay and Quaker Oats subsidiaries, is the name behind consumer-favorite brands like Doritos, Tropicana, Gatorade, SoBe Lifewater, Cracker Jack, Rice-A-Roni, and Grandma's Cookies.

Many investors already know that, though.

What you might not know is that PepsiCo's future earnings are based on much more than delicious snacks for U.S. consumers.

This global powerhouse is investing in two areas that will drive food company profits going forward: emerging markets growth and "good for you" products.

It has struck deals to develop both initiatives this year, and the efforts are paying off.

Increased emerging markets sales boosted PepsiCo's revenue from those countries 33% last quarter. Sales of healthy products are on pace this year to hit almost $15 billion, and the company hopes to double that by 2020.

When you combine its new business focuses with its existing profitable product lines, PepsiCo is strong enough to weather a global economic storm - exactly what our portfolios need to include right now.

So it's time to buy PepsiCo Inc. (**).

PepsiCo Inc. Knows Where to Find Profits
Purchase, NY-based PepsiCo, founded in 1898, has had a strong presence in the U.S. food and beverage market for decades. Now it's working on replicating that brand loyalty in developing economies.

Pepsi announced last year that it was going to invest $2.5 billion in China - one if its highest growth markets - to expand its local capacity. It has massive plans for new manufacturing facilities, research and development centers, and brand-building programs.

The increased investment has already helped sales. In the third quarter, PepsiCo reported snacks volume grew in eight of its top 10 international markets, with snacks volume in Asia, the Middle East and Africa up 16% from the year before. China's snacks volume was up 31%, India up 26%, and Turkey 22%.

PepsiCo, recognizing the growing global focus on nutrition, also is starting a healthy-foods initiative.

It's expanding its product range to include more juice, dairy, and grain products, and expects healthier selections to make up about 30% of its portfolio in 10 years. Right now about 22% of PepsiCo products are considered "good for you."

It's already making strides in health with some global dealmaking. PepsiCo in September became the No. 1 juice and dairy company in Russia when it completed its $3.8 billion purchase of Wimm-Bill-Dann. And it has many more healthy products in the pipeline.

PepsiCo is reportedly working with a German company on a new yogurt product for the United States, will introduce iron-fortified snacks in India, is developing a new fruit beverage for Latin American markets, and is trying to identify nutrient-dense staple crops in sub-Saharan Africa to locally produce snacks.

PepsiCo's profits also will get a bump from continued food inflation. Global food prices are expected to increase 4% next year, and could climb even higher on supply squeezes. Costlier food prompted the company to raise product prices, which helped boost last quarter revenue by 13%.

Indra Nooyi, PepsiCo chief executive officer, said the pricing adjustments ,as well as increased consumer demand, led to well-balanced top-line and bottom-line growth last quarter.

The company reported revenue of $64.5 billion in the last trailing 12 months and gross profits of $31.2 billion. PepsiCo has been steadily increasing earnings for five straight quarters, with an average 1.7% increase in net income and 26.2% revenue growth. Revenue in the third quarter ended Sept. 30 rose 13.3% to $17.6 billion.

Pepsi has a market capitalization of about $100 billion, and an enterprise value of more than $121 billion once net debt and cash levels are considered. The company's 3.2% dividend yield makes it one of the higher yielding defensive megacaps.

Analysts give it an average price target of $70.17, a 9.9% premium to Friday's $63.85 closing price.

Action to Take: Buy PepsiCo Inc. (NYSE: PEP) (**).

PepsiCo Inc. is a strong defensive play with steady and stable growth and dividend yield. It provides investors with a place to park low-risk capital.

The stock has had a tight trading range in the last year. It is extremely liquid and has a liquid options market.

Let's buy our exposure while the market is weak overall, but use the market to help average into this one. If you want to invest 3% of your low-risk portfolio, let's buy 2% at market now.

For the last third, let's put in a limit order at 5% below your first fill.

Pepsi also makes a great covered-call vehicle. The stock is not going to run away from us if we cap our near-term upside, and if it did, we can always repurchase it on weakness.

(**) Special Note of Disclosure: Jack Barnes has no interest in PepsiCo Inc. (NYSE: PEP).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning twice a week. In his BSH column last week, Barnes analyzed EOG Resources Inc. (NYSE: EOG).

Source :

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in