Semiconductor chips are all the rage among investors these days, but could corn chips and soda pop be an even better investment?
On Tuesday, Citigroup analyst Filippo Falorni made the case for buying PepsiCo (PEP 0.20%) stock, arguing that the purveyor of salty snacks and sugary drinks is underpriced at its current valuation — roughly 25.5 times trailing earnings, and $168 a share as of this writing — and will reach $195 within a year.
Upgrading PepsiCo stock
Pepsi recently lowered its target for 2024 organic sales growth (meaning growth of the brands Pepsi already owns, not counting growth from any new brands it buys) to “at least 4%” from a prior target of 4% to 6%, as StreetInsider.com reported Tuesday.
Now, that sounds like bad news for investors (and it is). But in Falorni’s opinion, it’s also sort of good news because it sets a new, lower threshold for investor expectations of what Pepsi will do this year. And that lower bar may be easier to clear, enabling Pepsi to deliver one or more positive surprises (i.e., earnings beats) over the course of the year.
Buy Pepsi stock, or is Coke “It”?
Perhaps the most curious comment Falorni made in recommending Pepsi, though, was his observation that Pepsi rival Coca-Cola (KO 0.19%) will probably outperform Pepsi on volume of sales this year. Coca-Cola stock, after all, sells for only 24 times trailing earnings at present, versus 25.5x earnings for Pepsi.
Coke also pays a slightly better dividend than Pepsi — 3.1% versus 3%. So if Coke is growing faster than Pepsi, pays a better dividend than Pepsi, and Coke stock even costs less than Pepsi, maybe the real question here is: Why buy Pepsi stock at all?
Because when it comes to value, Coke is “it.”
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
