Thursday, July 03, 2008

There is Still Plenty of Fizz in Pepsico

There have been growing concerns that many of the Consumer Staples are coming under growing cost pressures. Grain, energy, metals, and transportation costs have all risen sharply, and many Consumer Staples are large consumers of these materials.

We believe Pepsico can minimize these headwinds with an equally formidable list of growth opportunities:

  1. It continues to grow its non-cola franchises faster than its competition,

  2. It continues to expand its presence throughout the world -- it is strong in Brazil, Russia, India, and China, the so-called BRIC nations, where growing middle classes are producing geometric growth in per capita consumption of Pepsi. products;

  3. We believe they have more pricing power than many of their rivals.

The Dividend Valuation chart above indicates that PEP is currently selling at nearly a 10% discount from its fair value and nearly 25% under its projected year- ahead value, as shown by the striped bar at the far right.

We think Pepsico is a good stock for these chaotic times, and its continued good results will ultimately push the stock higher.

Finally, Pepsico has a logo of very patriotic colors: Red, White, and Blue. It seems a fitting stock to discuss on the Fourth of July.

We own the stock but this blog is not to be used for investment decisions. We will also not declare if and when we sell PEP. Please consult your own advisor.