"Big brand" companies sell well-known brands which often hold up well in volatile markets. But in today's frothy market -- which trades at a multi-year high of about 25 times earnings -- it can be tough to find big brand stocks which still trade at discounts to industry averages and the overall market.

In a previous article, I examined two "scorching hot" big brands stocks, Johnson & Johnson and General Mills, but concluded that neither was a great bargain at current prices. Today, we'll take a closer look at two big brand stocks which trade at more reasonable valuations -- Dr. Pepper Snapple Group (NYSE:DPS) and Mondelez International (NASDAQ:MDLZ).

Image source: Pixabay.

Dr. Pepper Snapple

Dr. Pepper Snapple was spun off of packaged foods giant Cadbury, now part of Mondelez, back in 2008. The company sells beverage concentrates to third-party bottlers and its own manufacturing facilities, packaged beverages, and various drinks across Latin America.

Dr. Pepper Snapple's revenue rose just 2% annually last quarter and is expected to improve 2% for the year. That growth sounds tepid, but it trumps both Coca-Cola (NYSE:KO) and PepsiCo (NASDAQ:PEP), which are expected to post respective declines of 6% and 1% this year due to heavier exposure to currency headwinds. Dr. Pepper Snapple's core earnings grew 11% during the quarter, and are expected to improve 9% for the full year. Coca-Cola's earnings are expected to fall 5% this year, while PepsiCo's are projected to improve 4%.

You might think that Dr. Pepper Snapple should be trading at a premium to both rivals, but it trades at just 22 times earnings -- which is lower than Coca-Cola's P/E of 25, PepsiCo's P/E of 31, and the industry average of 24 for the soft drinks industry. It's also maintained that lower multiple despite outperforming both stocks over the past 12 months with an 18% gain.

Dr. Pepper Snapple's brands. Image source: Dr. Pepper Snapple.

Dr. Pepper Snapple's only soft spot is its forward yield of 2.2%, which is lower than Coca-Cola's 3.2% yield and PepsiCo's 2.8% yield. However, investors will probably accept a lower dividend in exchange for lower multiples with better top and bottom line growth. The company spent 44% of its free cash flow over the past 12 months on dividends, so it still has plenty of room to continue its six-year streak of raising its payout annually.

Mondelez International

Packaged foods giant Mondelez sells well-known brands like Cadbury, Oreo, Ritz, Chips Ahoy, and Philadelphia cream cheese. But like many of its multinational peers, Mondelez has been hit hard by currency headwinds over the past few quarters.

Last quarter, Mondelez's revenue fell 18% annually due to steep double-digit declines in Europe and Latin America. But on an organic basis, which excludes currency impacts, acquisitions, divestitures, and other expenses, sales rose 1.5%. That figure looks paltry compared to PepsiCo's 3.3% organic growth last quarter, but Mondelez could eventually buy other big companies like Hershey's to grow inorganically or expand its presence in major markets like China. Analysts expect Mondelez's revenue to fall 11% this year but possibly rebound 2% next year.

Mondelez's adjusted net earnings rose 4.5% on a constant currency basis. Analysts expect the company to post 5% earnings growth this year and 13% growth next year. Much of that bottom line growth is fueled by buybacks, but it also reduces Mondelez's trailing P/E to just 9 -- which is much lower than the industry average of 29 for the confectionery industry. Mondelez pays a forward yield of 1.8%, spent 65% of its free cash flow over the past 12 months on dividends, and hiked its payout every year after introducing a dividend in late 2012.

Image source: Pixabay.

Mondelez has fallen 8% over the past 12 months as investors focused on consumer staples stocks with better top line growth and higher yields. However, activist investors like Bill Ackman and Nelson Peltz haven't ignored Mondelez, and both are pressuring the company to buy more companies, cut costs, or sell itself to boost shareholder value.

The key takeaway

I personally think Dr. Pepper Snapple is a better buy today than Mondelez because it has a simpler business model, less exposure to currency headwinds, and a higher dividend. However, I also think Mondelez is worth watching at 9 times earnings, since activist involvement, a weakening dollar, and the possibility of future acquisitions could help the stock bounce back.


This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.