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3 Stocks That Could Soar More Than Pepsi

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The soft drink giant has treated its investors well. But these three businesses could do even better.

Buying and holding high-quality stocks is arguably the best way to predictably generate wealth over the long term. And few companies have been more successful to that end than PepsiCo (PEP 1.64%), shares of which have turned thousands of dollars into millions for its earliest investors since going public in the late 1970s. 

Of course, not everyone has the fortitude to buy and hold their stocks for quite that long. But even had you bought Pepsi as a mature business 20 years ago and reinvested your dividends, you would have enjoyed a market-beating return of nearly 400%. And investors who picked up shares "just" 10 years ago and reinvested dividends have roughly doubled their money.

That raises the question: Can we do even better? So we asked three top Motley Fool investors to each pick a stock they believe could soar more than Pepsi. Read on to learn why they think Zillow Group (Z 6.05%) (ZG 6.26%), Restaurant Brands International (QSR 2.87%), and Mastercard (MA 0.88%) fit the bill.

Man in background touching a bar and line graph indicating investing success


Zooming higher with Zillow

Steve Symington (Zillow Group): Despite setting new traffic and revenue records in the second quarter, shares of Zillow Group are down about 20% from their 52-week high set in late June. And I think now is a great time to buy shares of the online real estate platform leader.

More than 178 million monthly unique users flocked to Zillow Group brands' mobile apps and websites -- including Zillow, Trulia, StreetEasy, HotPads, Naked Apartments, and -- last quarter, a 6% increase year over year. But we've only just seen the tip of the iceberg as Zillow works to monetize its brands and capture a larger slice of the roughly $12.5 billion that realtors spend each year advertising their listings; Zillow most recently issued full-year 2017 guidance for revenue to be in the range of $1.055 billion to $1.065 billion. And keeping in mind revenue from Zillow's Premier Agent program comprised more than 76% of total sales last quarter, that's not to mention the potential for Zillow's younger mortgages, rentals, and services platforms like Dotloop (acquired in late 2015) to drive meaningful incremental revenue and earnings down the road.

In the meantime, note that Zillow's latest full-year guidance includes expected third-quarter revenue of $273 million to $278 million, representing healthy growth of nearly 23% year over year at the midpoint. But Wall Street was already modeling revenue slightly above the high end of that quarterly range when Zillow issued its guidance in August. The resulting pullback has created what I believe is a fantastic opportunity for patient, long-term investors to open or add to a position.

Serving up fast-food profits

Sean O'Reilly (Restaurant Brands International): Pepsi has been one of the best stocks to own in modern American history. And though it is now a slower-growth blue chip, its shares have more than doubled since the Great Recession. Pepsi also rewards investors another way: with a juicy dividend that currently yields 2.9%. Finding a stock capable of matching Pepsi's name brand and steady profit growth isn't easy. But my pick for a stock that could soar more than Pepsi, Restaurant Brands International, has what it takes. Here's why.

Restaurant brands are the owner of several fast food names that will no doubt be familiar: Burger King, Tim Horton's and Popeye's Louisiana Kitchen. Shares in the fast-food holding company first became available to the public in 2012. The IPO occurred so that 3G Capital, the private equity group that bought the three chains wanted to cash in on their investment. 3G is led by billionaire and Warren Buffett inner circle member Jorge Lemann. Lemann and 3G have made a name for themselves as turnaround artists of consumer brands. They've had a hand in some of the most prominent buyouts to hit Wall Street in recent years, including the 2016 merger of AB InBev and SAB Miller. 3G's operating philosophy revolves around zero-based budgeting. Managers are forced to justify every expense, no exceptions. As was the case with Restaurant Brand's three restaurants, 3G buys companies it thinks it can run better than current management. It then streamlines operations in the hopes of increasing profits (and the company's value).

Thanks to 3G's sound management, Restaurant Brands International is one of the world's largest and most profitable quick service restaurant companies. With more than $28 billion in systemwide sales and over 23,000 restaurants in more than 100 countries and U.S. territories as of fiscal 2016. 3G capital still owns 42.5% of restaurant brands. Analysts expect earnings-per-share to grow from $1.82 in FY 2017 to $5.36 per share by the FY 2021 -- 31% per year. With earnings growth like that and a dividend yield of 1.3%, Restaurant Brands is a solid bet to trump Pepsi's returns.

Processing... profits approved! 

Sean Williams (Mastercard): Beverage and snack giant Pepsi has had quite the run, gaining 52% over the trailing decade on the heels of name-brand products and strong brand ambassadors. But if there's one company that could handily leave it in the dust, its payment-processing giant Mastercard.

What makes Mastercard, and its rival Visa (V 1.16%), so special, is that these are pure payment facilitators. In other words, they don't double-dip by lending money as well. Companies like Mastercard and Visa earn their keep by generating money via transaction fees. Though this could put them at a margin disadvantage to their peers during times of economic expansion, they also have zero lending delinquency risk when the U.S. or global economy contracts or pushes into a recession.

Mastercard also has a long-tail opportunity to grow its top- and bottom-line by the mid-to-high single digits. The reason? In the words of the company's own CFO, Martina Hund-Mejean, 85% of global transactions are still being conducted in cash.  This suggests that the company has a multi-decade opportunity to increase its presence and penetration in emerging markets in Africa, the Middle East, and Southeast Asia. Adding these rapidly growing markets may even help shield Mastercard from slowdowns in more developed countries.

However, don't overlook the fact that Mastercard does take care of its shareholders. Since introducing a split-adjusted $0.06 per quarter dividend in the summer of 2013, Mastercard has since lifted its quarterly payout to $0.22 per quarter.  Though its current yield is only 0.6%, this is more a function of Mastercard's rising share price than a lack of effort to give shareholders more.

What's more, in December the company announced that its board approved a $4 billion share buyback, which was added to the $1.3 billion remaining from its previous $4 billion share repurchase program. 

Long story short, you'd struggle to find a better-run company.

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Stocks Mentioned

Pepsico, Inc. Stock Quote
Pepsico, Inc.
$169.39 (1.64%) $2.73
Zillow Group, Inc. Stock Quote
Zillow Group, Inc.
$33.80 (6.26%) $1.99
Restaurant Brands International Inc. Stock Quote
Restaurant Brands International Inc.
$51.59 (2.87%) $1.44
Zillow Group, Inc. Stock Quote
Zillow Group, Inc.
$33.67 (6.05%) $1.92
Mastercard Incorporated Stock Quote
Mastercard Incorporated
$318.24 (0.88%) $2.76
Visa Inc. Stock Quote
Visa Inc.
$199.18 (1.16%) $2.29

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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