Stock Picks for Chicks: Put Some PEP in Your Portfolio

History is full of epic rivalries: boxers vs. briefs, the Whopper vs. the Big Mac, Yankees vs. Red Sox, Paris vs. Nicole. But foremost of all these storied conflicts, the Great Cola Wars -- the long-standing Coke vs. Pepsi showdown -- still has the power to divide even the closest of friends.

Despite our differences in soda pop preferences -- Dayana carries the banner of Diet Pepsi, while Alyce defends Diet Coke to the death -- we do agree that PepsiCo (NYSE: PEP  ) is the brand best suited for investors' portfolios.

Introducing New Pepsi!
No, Pepsi isn't replacing its flagship formula, a la "New Coke." But this consumer giant has adopted a new and refreshing approach to everything it does, from top management down to the business of environmentally friendlier resource management.

Leading the charge is an extremely high-powered female CEO, who's driving the business in unconventional and highly effective ways.

Pepsi Chairwoman and CEO Indra Nooyi is a different kind of leader, and not just because she happens to be a woman in the upper echelon of a corporate landscape largely ruled by many, many men.

In 2006, she became Pepsi's first female CEO in its 40-plus year history, having previously held a management gig at Motorola (NYSE: MOT  ) . This year marks the fifth consecutive year Nooyi has topped Fortune's "50 Most Powerful Women in Business" list.

Under Nooyi's leadership, Pepsi has executed on a lot of interesting plans. For example, Nooyi has made it plain that she wants to hire an inclusive workforce of people with different backgrounds.

Her commitment to employment diversification isn't just lip service: She puts her money where her mouth is. In 2008, she told Diversity magazine that she pins 50% of her annual bonus on achievement of diversity-based "people" goals.

In another check in the "exemplary leadership" column, this past year Nooyi requested that her base salary remain the same, even though her pay is considered below market value.

In a world where far too many CEOs and top executives seem more concerned with their huge paychecks than the long-term success of the companies they helm, seeing a CEO who indicates there's a point where a salary is "enough" is as refreshing as a cold Pepsi (or Gatorade, or Tropicana, or ...) on a hot summer day.

Winning the Pantry Wars
We mentioned the famous soda showdown earlier, but Pepsi's current and future business models make the old "Coke vs. Pepsi" war moot.

Beyond its signature soft drink, Pepsi's also the name behind Quaker Oats and Frito-Lay, and a host of brands like Doritos, Tostitos, Ruffles, Tropicana, Propel, and Gatorade. That's quite a diversified range of products, and definitely a bigger array of choices than beverage-centric rival Coca-Cola (NYSE: KO  ) .

Under Nooyi, Pepsi's also trying to capitalize off of healthier eating trends, launching "good-for-you" products that it hopes to grow from $10 billion in sales now to $30 billion in the next decade.

Pepsi's most recent quarterly report included impressive earnings, boasting a 12% increase in profit and a 40% revenue increase, much of which owed to its recent acquisitions. Investors balked on word of Pepsi's plans to invest in emerging markets like China and Russia -- but such global investments are exactly what long-term investors should want to see. BusinessWeek recently discussed Nooyi's idea that emerging markets are actually "learning labs" for new products and potentially disruptive business models that could be imported back to the U.S.

Pepsi also has a lot of environmentally sustainable initiatives in the works, as the company devises sustainable manufacturing processes to reuse, recycle, and conserve precious resources. For example, last year its Frito-Lay unit converted one-third of its plants to "zero landfill" status with the rest to follow by 2011.

What's better than a bottle refund? A dividend!
In addition to being kinder to the environment, Pepsi has a history of being kind to shareholders. The company ranks among Standard & Poor's "dividend aristocrats," a title bestowed on companies that have paid -- and increased -- their dividends for at least 25 years.

Pepsi ranks No. 1 among its peers in the Food, Beverage and Tobacco industry, with a five-year dividend growth rate of 13.7%.

Top "dividend aristocrats" by yield in the Food, Beverage, and Tobacco industry:

Company

Trailing Yield

5-Yr Dividend Growth Rate

1. PepsiCo 3.0% 13.7%
2. Coca-Cola 2.9% 9.7%
3. Brown-Forman (NYSE: BF-B  ) 1.9% 9.3%
4. Archer-Daniels-Midland (NYSE: ADM  ) 1.8% 12.6%

Source: Capital IQ, a division of Standard & Poor's.

Check out that trailing yield! Investors who balk at the idea of paying 16 times earnings for what might seem like an old-school, slow-growth blue chip might want to ponder all the things Pepsi has going for it.

With so much girl power at Pepsi's disposal, it's a solid contender for any gal's (or guy's) portfolio. Follow Pepsi in our My Watchlist feature, and check out last week's episode of Stock Picks for Chicks, where we dissected a popular retail stock.

Coca-Cola is a Motley Fool Inside Value recommendation. Coca-Cola and PepsiCo are Motley Fool Income Investor recommendations. Motley Fool Options has recommended a diagonal call position on PepsiCo. The Fool owns shares of Coca-Cola. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomaxand Dayana Yochim do not own shares of any of the companies mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (23)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 10, 2010, at 4:58 PM, stan8331 wrote:

    Classic Coke is my favorite non-diet soda, but on every other score, I find myself favoring Pepsi (Diet Mountain Dew and Pepsi One being my swill of choice). I like Pepsi's dividend level and growth, their diversified product line and emerging market expansion opportunities. Beyond that, having a strong, well-respected CEO who's looking to the future rather than desperately attempting to cling to the past is a major positive, as is a corporate culture that emphasizes the value of diversity.

    Like quite a few other large cap stocks, PEP also appears to be an excellent value right now. I think you just convinced me it's time to buy. :-)

  • Report this Comment On November 11, 2010, at 9:22 AM, TMFLomax wrote:

    stan8331, thanks for commenting, and I concur! I really like how you put that, looking to the future rather than desperately attempting to cling to the past. It's definitely a major positive! Evolution is important for some of these well-established companies and it seems like Pepsi's management is very aware of that.

    Alyce

  • Report this Comment On December 15, 2010, at 3:08 PM, rose64 wrote:

    I am a pepsi fanatic, my mother was a diabetic and the only soda she drank was diet pepsi, so i became hooked. Its good to hear about the progress the company is making. it makes me proud to be a fan of the beverage. also i am getting my associate in business management and its good to see that there is a company that is doing some of the things we are learning about in class. GO PEPSI!!!

Add your comment.

DocumentId: 1364985, ~/Articles/ArticleHandler.aspx, 7/29/2014 7:56:07 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement