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Is It Safe to Buy Into "Big Soda"?

By Motley Fool Staff – Jul 28, 2016 at 8:56PM

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While changing consumer preferences present challenges for the industry, investors should not be selling their holdings quite yet.

In this clip from Industry Focus: Consumer GoodsAsit Sharma and Vincent Shen give their final thoughts on the future of PepsiCo (PEP -0.52%) and Coca-Cola (KO 0.10%) for both current shareholders and potential investors. Despite being an industry in transition, the long-term mindset at these century-old companies has them well-positioned to quench consumers' thirst for generations to come.

A full transcript follows the video.

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This podcast was recorded on July 19, 2016. 

Vincent Shen: As we wrap up here Asit, what do you think? Any final takeaways? 

For me, for this industry, I think I see a lot of people try and kind of similar to fast food, similar to McDonald's, sometimes you hear people writing the obituary for soda. How people, consumers being more health conscious are going to turn away from their products, that maybe a few decades down the line they'll really struggle and won't be around anymore potentially. To me their brands are just too strong. These are huge companies with a lot of resources, I think, to invest in innovative new products or to invest in that upstart drink down the line or that upstart snack down the line. Overall, some people also talk about the potential research that they can do into other sweeteners beyond high fructose corn syrup that can present better health benefits or non-negative health issues. People can still enjoy their Coke or their Pepsi, but any other takeaways from you?  

Asit Sharma: Yeah Vince, I just want to agree with you totally. Both of these companies are too innovative for investors to look away. Investors, stay put! These are two awesome companies with great cash flow. They have sales growth potential ahead of them because of the innovation. They both are reacting very vigorously to this decline in sodas. As you mentioned, they are working on lots of different types of sweeteners.  

It may take years, but at some point they probably will be able to replicate what did Coke or Pepsi or Mountain Dew taste like using more natural ingredients. They are fine tuning their distribution, working on global markets, working on global volume. While it may look bleak, at least for Coke and for Pepsi, both of these companies are working on the exact things that you would want them to implement to survive and be the type of strong cash flow returners, great value propositions over the years and total return vehicles.  

Let's not forget that as you mentioned, both supply ample dividends. My takeaway is the exact same. That innovation will carry these companies forward. Now is a great time to stay invested or invest if you're looking at either of these.  

Shen: Absolutely. All right, thanks a lot, Asit! It was awesome having you on the show again.  

Sharma: Thanks so much, Vince! I enjoyed it.  

Asit Sharma has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends PepsiCo. The Motley Fool recommends Coca-Cola. 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 Motley Fool has a disclosure policy.

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Stocks Mentioned

Coca-Cola Stock Quote
$62.69 (0.10%) $0.06
PepsiCo Inc. Stock Quote
PepsiCo Inc.
$184.11 (-0.52%) $0.97

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