The stock for great companies doesn't fall into the discount bin all that often. It is usually a good deal if you simply get a fair price, which is what looks to be the case with PepsiCo (NASDAQ: PEP) today.
Although the price is "only" down around 9% from its 2023 highs (just above "correction" territory), the dividend yield and valuation metrics here suggest now is a good time to add the stock to your portfolio.
What does PepsiCo do?
The PepsiCo name is clearly associated with the soda brand Pepsi, one of the largest and best-known beverage labels on the planet. Soda is, indeed, a big part of PepsiCo's business, but it is only one part. The company's beverage activities span a wide gamut, including sports drinks, teas, and even protein drinks. And that doesn't even touch on the full scale of the $230 billion market cap company's portfolio.
In addition to Pepsi, PepsiCo also owns Frito-Lay. Frito-Lay is probably best known for making potato chips, which is a very big business for the consumer staples giant. But the snack business goes well beyond potato chips, including corn chips (Tostitos), multi-grain chips (Sun Chips), popcorn (Smartfood), and pretzels (Rold Gold), among others. PepsiCo is the No. 2 player in soda behind Coca-Cola , but it is the No. 1 player in salty snacks.
And that's not all that PepsiCo owns, since it also has a portfolio of food brands headlined by Quaker Oats. The list of brands here includes Quaker Oats, Near East, Pasta Roni, and Grandma's, among others. While not as dominant in the packaged food space, PepsiCo is a top-tier name in the sector thanks to its strong relationships with grocery stores.
That last point is really important to highlight. PepsiCo is a huge company with important brands, strong marketing, and a massive distribution network. It is a vital partner for grocery stores and other food sellers, which helps to solidify its industry position and allows it to act as an industry consolidator (adding new brands into its powerfully operating platform). If you are looking for a diversified consumer staples stock, Pepsico will have you covered.
PEP data by YCharts
Is PepsiCo worth buying today?
From a purely stock price point of view, PepsiCo stock trades around 9% below its 2023 highs. That puts the stock just above correction territory . But, as the chart above highlights, 25% drawdowns aren't unusual. Still, now is the time to start looking at PepsiCo and, perhaps, building a position, knowing that you'll add more if the sell-off deepens.
Notably, the dividend yield is around 2.9% today. While that's not the highest the yield has ever been, it is toward the high end of the historical yield range. Using yield as a rough gauge of valuation, PepsiCo looks like it is on sale. Note, too, that the dividend has been increased annually for 52 consecutive years, making the company a highly elite Dividend King .
PEP data by YCharts
Traditional valuation metrics back up that assessment. The stock's price-to-sales ratio , price-to-earnings ratio, price-to-book value ratio, and price-to-cash flow ratios are all below their five-year averages. The degree of discount varies, with the P/E ratio hovering pretty close to the five-year average, but the point is that PepsiCo looks at least fairly priced, if not a little cheap right now.
A fair price for a great company
It wouldn't be appropriate to suggest that PepsiCo is a screaming buy today. But it does look like it is trading at an attractive level, particularly for a company with so many strong consumer staples businesses in its portfolio. Add in the attractive dividend yield, noting that the S&P 500 's yield is a scant 1.3%, and there's even more reason to jump aboard. And if a deeper drawdown comes about, well, that's just an opportunity to buy more of this well-run company.
Should you invest $1,000 in PepsiCo right now?
Before you buy stock in PepsiCo, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and PepsiCo wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $661,779 !*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
See the 10 stocks »
*Stock Advisor returns as of September 3, 2024
Reuben Gregg Brewer 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 .
Most Popular
Comments / 0