Artificial intelligence (AI) stocks might have stolen the show over the last year, but some Wall Street analysts are not ignoring the value in top consumer brands. Many investors like to reserve a portion of their portfolios for stocks that pay reliable dividends.
Wall Street doesn't play the long game, so a long-term investor usually won't get much value out of analysts' opinions. But sometimes, analysts' calls can point out timely buying opportunities.
I believe that's the case with two recent bullish analyst calls on PepsiCo (PEP 0.75%) and Starbucks (SBUX +0.91%). Here's why these top stocks are ripe for the picking.
PepsiCo
Morgan Stanley analyst Dara Mohsenian recently named PepsiCo his top overall pick. He upgraded his rating on the shares to overweight (buy) with a price target of $190, which is marginally higher than the current price. The stock's above-average yield signals it could be undervalued, given PepsiCo's solid brand portfolio and track record of dividend growth.
NASDAQ: PEP
Key Data Points
PepsiCo skated through the high-inflation environment over the last few years well. The company reported adjusted revenue growth of 9.5% for 2023, while non-GAAP earnings per share increased by an impressive 14% on a constant-currency basis. Its portfolio of top brands, including Doritos, Gatorade, and Quaker Oats, has produced profitable growth for decades.
PepsiCo typically distributes about three-quarters of its earnings as dividends. This is why it's great to see management still finding opportunities to grow the business in convenient foods and international markets. Analysts expect PepsiCo to grow earnings at an annualized rate of 7% over the next five years.
It's for these reasons the stock is worth buying on the dip. Shares are down by about 12% from their 2023 high, but up slightly year to date, with the dividend yield sitting at an attractive 2.9%. PepsiCo has hiked its dividend annually for 52 consecutive years, and has outstanding prospects to continue that streak.
Starbucks
Starbucks stock is currently down 5% year to date, but analysts at JP Morgan recently weighed in by maintaining an overweight (buy) rating and a price target of $100.
Starbucks has also navigated the recent inflationary headwinds well, with revenue and earnings up compared to the same quarter three years ago. In the most recent quarter, global comparable sales grew 5% year over year, driven by growth in loyalty club members and spending per member.
NASDAQ: SBUX
Key Data Points
Demand for Starbucks' offerings appears stronger than ever. Customers have been favoring more premium beverages lately, which leads to more customization and higher-margin revenue. Management believes it can grow adjusted (non-GAAP) earnings per share (EPS) by percentages in the high teens annually through fiscal 2025. It reported 20% adjusted EPS growth in fiscal 2024's first quarter (which ended Dec. 31).
Starbucks distributed 57% of its earnings as dividends last year, so the high growth forecast could translate to strong dividend growth, but the stock's yield is already attractive enough at 2.4%. That above-average yield and prospects for double-digit earnings growth should help Starbucks deliver market-beating returns to investors.
