PepsiCo (PEP)

There is a lot of pressure on carbonated beverages. It’s shrinking year-over-year. This has transitioned away better than Coca-Cola (KO-N) has. More than 50% of revenues comes from non-carbonated beverages. They have over 20 brands that generate over $1 billion a year. He would consider this if it were cheaper. Trading at over 20X Price to Earnings.

(Market Call Minute.) A well-managed company. About half their business comes from Frito-Lay salty snacks. This is one you might want to look at after the yield curve inverts.

The PepsiCo (PEP-N) Coca-Cola (KO-N) Rivalry never seems to end. Of the 2, he would prefer PepsiCo, but doesn't own either. It has done a better job of diversifying away from the reliance on carbonated soft drinks. Today, more than 50% of their revenues come from noncarbonated drinks. There is still a lot of uncertainty as to what this kind of business looks like 5 years from now. He would not be a buyer at this time.

Within this overall space, there is no rush to buy the name. The carbonated soft drink industry is not growing. Trading at 23X, which is not cheap. About 50% of revenue is coming from noncarbonated soft drinks.

This has been a very positive stock story over the years, but it is far too expensive in a failing space. Carbonated sodas and salty snacks are certainly not growth areas anymore. Management has done a good job in managing the space, but at 23X earnings he wouldn’t dip his toe in the water.

Coca-Cola (KO-N) or PepsiCo (PEP-N)? These are both struggling with the carbonated soft drinks side of things. There really hasn’t been much in terms of revenue growth for either.

It has been a fabulous stock. It seems to be doing everything right. It diversified away from sugary soda. The risk is thinking of it as a reliable beverage company. There is always the risk of a trip-up. She would prefer it to Coke (KO-N).

There is potential for this to make large acquisitions. They’ve been rumoured to be a potential suitor for Mondelez (MDLZ-Q), expanding out of the soft drink space and further into the sweet, snack food space. However, it has an elevated valuation trading at close to 21X earnings. Coca-Cola (KO-N) would be a more attractive valuation and gives you a higher dividend yield.

This is sort of unique in that they have a bit of a market niche. They did an expansion into the food group better than anybody else in their industry. This has a high multiple, but it has been higher before. They have the International growth continuing.

(Market Call Minute.) Like a lot of US multinationals, it is not cheap. Will probably grind its way a little higher. You can collect the dividend and you’ll be fine.

It becomes a favourite industry when we are uncertain about the future. Pepsi understands the pulse of changing taste. It even looks inexpensive.

Coca-Cola (KO-N) or PepsiCo (PEP-N)? The key difference is that this company has a more established non-beverage business. Over 50% of revenue comes from non-beverage items. They have been busy doing acquisitions on that front. Would prefer Dr. Pepper Snapple Group (DPS-N) which has about a 10^th of the market share of these 2, so there is an opportunity to steal market share.

Coca-Cola (KO-N) or PepsiCo (PEP-N) for a long-term investment? He doesn’t care for either. His choice would be Dr. Pepper Snapple (DPS-N). Carbonated beverage consumption is going down, so it is a race to try to diversify outside of that. Pepsi has done a better job of that. They have 22 brands and generates over $1 billion a year.

Sold his holdings because of valuations. Currently trading at about 21X earnings. The growth metrics started to sputter. The carbonated beverage market has been a tough one. Last quarter revenues were down year-over-year, which is not a good sign for a company. Earnings were up a little on cost cutting, and they are really getting their growth out of cost cutting. The Frito-Lay part of their business was toppy as well. People are moving towards healthier snacks. He would pass on this.

You have to like the product positioning and the growth they have shown over the last number of years. Valuation is high. It has come down a little bit and they are facing a bit of a headwind because of the stronger US$. If you are a long-term investor, these big US multinationals are better plays on global growth.