How To Buy Pepsi Stock
Other investors suggest that worries about tougher years ahead could make the company a good buy. "Mad Money" host Jim Cramer said in early January that investors should opt for stocks like Coca-Cola and Pepsi-Co that could do well even during a potential recession or in case of a stock market crash.
how to buy pepsi stock
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Pepsi's outlook for the 2023 year isn't quite as bright. But the company still sees room to post solid sales growth while boosting profitability. Let's look at whether the dividend stock still looks attractive as an investment today.
Pepsi's 2023 outlook might be considered a disappointment to some investors. The company is calling for organic sales growth to slow to about 6%, compared with 14% last year and 10% in 2021. Pepsi isn't significantly boosting cash returns, either. Executives plan to spend $7.7 billion on dividends and stock buybacks this fiscal year, or about the same as in 2022.
And the price is reasonable for the stock. Pepsi is valued at less than three times annual sales, representing a discount to McCormick, which is having more trouble posting strong growth. And Pepsi has a good shot at pushing its profit margins back above McCormick's over the coming years, thanks to the combination of growth, cost cuts, and market share gains.
It seems crazy that Pepsi's stock has underperformed the market over the past three years given those operating and financial wins. But that factor makes it more likely that prospective investors will see solid returns from here. Pepsi is winning in some key consumer-staples niches while paying a growing dividend. As a result, shareholders will probably be glad to have this stock in their portfolio.
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Valuing PepsiCo stock is incredibly difficult, and any metric has to be viewed as part of a bigger picture of PepsiCo's overall performance. However, analysts commonly use some key metrics to help gauge the value of a stock.
Recently PepsiCo has paid out, on average, around 67.75% of net profits as dividends. That has enabled analysts to estimate a "forward annual dividend yield" of 2.56% of the current stock value. This means that over a year, based on recent payouts (which are sadly no guarantee of future payouts), PepsiCo shareholders could enjoy a 2.56% return on their shares, in the form of dividend payments. In PepsiCo's case, that would currently equate to about $4.525 per share.
PepsiCo's payout ratio would broadly be considered high, and as such this stock could appeal to those looking to generate an income. Bear in mind however that companies should normally also look to re-invest a decent amount of net profits to ensure future growth.
The valuation of both Coca-Cola and Pepsi stock is very similar. Coca-Cola stock trades just under $60 a share and 23.4X forward earnings which is roughly on par with the industry average. This is 18% below its decade high of 28.5X and just above the median of 22.9X.
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PepsiCo (PEP) has come a long way since the Pepsi Challenge vs. Coca-Cola in the 1970s. The company's push beyond drinks has helped Pepsi top its rival's sales, and Pepsi stock is outperforming too.
While Pepsi is not known for strong earnings growth or stock price performance, it stands out for its steady income stream. The food and drinks giant is a member of the S&P 500 Dividend Aristocrats, companies that have increased their dividend payout for 25 or more consecutive years.
IBD Stock Checkup assigns PepsiCo a 72 Composite Rating, which gives investors a quick way to assess a stock's key growth traits. That puts it at the top of the 31-stock packaged foods group, which includes Flower Foods (FLO) and J.M. Smucker (JAM).
An A SMR Rating (sales + profit margins + return on equity) puts Pepsi in the top 20% of all stocks, based on those metrics. Last year's ROE of 54.5% is well above the desired 17% minimum for growth stocks. Sales grew by single digits the past four years. Wall Street forecasts a 7.2% increase this year and 4.5% the next.
On the technical front, Pepsi's 54 Relative Strength Rating means it's trailing 46% of all stocks. Its relative strength line, which compares a stock's performance to the S&P 500, is also well off highs but has turned up recently.
After recovering from a 31% drop amid the coronavirus crash last year, PEP stock began shaping a cup base in January. It then added a handle in early April, according to MarketSmith chart analysis. Pepsi first climbed past a 145.06 buy point, or 10 cents above the handle's high, the same month.
PEP stock's Composite and RS ratings stand below the 90 minimum of leading growth stocks. But the company's earnings track record, steady dividends, and diversification in the beverage and snacks market may appeal to some investors.
PepsiCo (NASDAQ: PEP) shares have been able to avoid the gravitational pull of the market pullback for the most part and are only 3% off their August high. Undoubtedly, the defensive dividend stock is a prime target for investors looking to dampen market volatility. Though Pepsi stock and other consumer staples may still feel some of the shockwaves, it's likely that they'll continue to do a better job of holding their own than the market averages. Despite its relatively rich valuation multiple, I remain bullish on PEP stock since few firms can offer a comparable degree of certainty these days.
Still, after a 23% plunge in the S&P 500 (SPX), there are many better deals than Pepsi. At writing, Pepsi stock trades at a hefty 26.3x trailing earnings multiple. The 2.63% dividend yield may seem attractive, but with certain battered telecom stocks offering more than 7% yields, Pepsi is fairly valued at best and a likely candidate to fizzle out once the rest of the market finds its footing. Nonetheless, it's a prime candidate for current market conditions.
Though you can find cheaper stocks elsewhere, few stocks can offer the same magnitude of stability as Pepsi. With a portfolio of some of the best-known consumer-packaged goods that tend to experience stable demand in dire economic conditions, Pepsi is one of few firms that can offer anxious investors true peace of mind in the face of the unknown. For the type of exposure Pepsi will grant, the price of admission seems worth paying for those looking to batten down the hatches.
Seemingly cheap stocks (think discretionary firms whose shares boast single-digit P/E multiples) can suddenly become more expensive if earnings sink faster than expected. That's why chasing low P/E multiples may not be the best strategy to stabilize your portfolio in the face of a market down cycle.
PepsiCo (NASDAQ:PEP) recently issued an earnings report that surpassed analyst expectations and inspired a notable rise in the firm's stock price. For investors looking at defensive names in the 2023 trading year, do these recent financial figures suggest the soft drink and snack giant has become a long-term buy?
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Pepsi's complementary portfolio of brands include snack-time hall-of-famers like Frito-Lay, Gatorade, Pepsi-Cola and Tropicana. But the stock definitely lacks fizz these days, hovering around $114 with a one-year consensus analyst stock price of $117.
PEP stock at a glance. PepsiCo has been on a roller-coaster ride in 2018. PEP launched the new year with a share price of $115, but the stock price dropped to $94 per-share in late April, before climbing back to $114 in August.
Earlier this year, PepsiCo increased its dividend by 15 percent and shares now yield a respectable 3.3 percent at its current price. The stock currently trades at 20.7 times trailing earnings, a 15 percent premium to its average valuation of 18.8 times trailing earnings over the last 10 years.
Pros to buying PEP stock. PepsiCo's stock dividend rate of 3.3 percent is a big attraction for income-minded investors and the sentiment for share price growth for a company that sits atop the $200 billion global soft drink and bottled water market would seem to be positive. 041b061a72