Why Pepsi Stock is a Solid Investment

October 2, 2020

Pepsi stock drink

PepsiCo Inc (NASDAQ: PEP) advanced 1.6% on Thursday as investors digested another solid earnings report from the food & beverage giant.

Tim’s Take:

Pepsi versus Coca-Cola Co (NYSE: KO) always seemed to represent the quintessential battle in the world of sugary drinks. 

While Coke has come out the undisputed winner for most on the “taste test” front, Pepsi shares have actually trounced Coke’s over the past decade.

Pepsi’s latest earnings continued to confirm the food and drinks giant’s dominance. The company beat on both the top line and on an earnings per share (EPS) basis. 

Sales came in at US$18.09 billion, up 5.3% year-on-year, handily surpassing the US$17.23 billion expected. It’s a commendable showing in a time when the US economy has been severely handicapped by the Covid-19 pandemic.

Benefits of diversification

The main reason for this? Pepsi has benefitted from having a strong snacks division, also something which Coke doesn’t have. 

Known for its Doritos, Cheetos and Quaker-branded oatmeal, Pepsi has managed to offset the crushing fall in drinks sales earlier in the year (from the likes of restaurants and sporting events) by having a solid stable of food brands.

That was clear from the latest set of numbers, where its Frito-Lay and Quaker Foods businesses reported organic revenue growth of 6%.

Even in its latest quarter, drinks sales managed to rebound – up 3% year-on-year, with sparkling water, Lipton tea and Starbucks-licensed products all providing a boost.

If investors want reliability, along with a dividend yield of close to 3% from a company that has paid a rising dividend for 47 straight years, then Pepsi could be a good bet.

The company continues to get the key things right in a highly-challenging environment. Even though shares are only slightly up so far in 2020 (by just over 3%), Pepsi could be an unlikely winner in the eventual full reopening of the American economy.

Until then, just keep picking up that dividend and perhaps grab a few packets of Doritos while you’re at it as well.

This material is categorised as non-independent for the purposes of CGS-CIMB Securities (Singapore) Pte. Ltd. and its affiliates (collectively “CGS-CIMB”) and therefore does not provide an impartial or objective assessment of the subject matter and does not constitute independent research. Consequently, this material has not been prepared in accordance with legal requirements designed to promote the independence of research. Therefore, this material is considered a marketing communication.

This material is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CGS-CIMB’s clients generally and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this material. The information and opinions in this material are not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, derivative contracts, related investments or other financial instruments or any derivative instrument, or any rights pertaining thereto. CGS-CIMB have not, and will not accept any obligation to check or ensure the adequacy, accuracy, completeness, reliability or fairness of any information and opinion contained in this material. CGS-CIMB shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.

Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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