The start of 2025 has proven to be more challenging for investors compared to the stock market's record-breaking highs of 2024. The Nasdaq Composite index is down approximately 13% from its all-time high, amid renewed jitters regarding the strength of the economy and uncertainty over the effect of trade tariffs being implemented by the Trump administration.
Investors seeking some relief from the volatility should take a closer look at index constituent PepsiCo (PEP 0.01%). Shares of the packaged foods giant have been an outlier amid the market turbulence. It's rallied by more than 8% in the past month, fueled by a profitable growth outlook. Furthermore, several metrics suggest that its valuation is the most attractive it's been in years, making the stock a rare bargain.
Let's discuss why PepsiCo might be a great addition to your portfolio right now.
Leadership through steady growth
Unlike the disruptive tech sector giants often associated with the growth-oriented Nasdaq index, PepsiCo's strength lies in a different kind of innovation. The company's ability to adapt to changing consumer tastes across different macroeconomic environments as a consumer goods leader is at the core of what makes the stock a compelling investment opportunity.
Beyond its flagship Pepsi soda, the company boasts an extensive portfolio of beverage and snack brands -- including Lay's, Doritos, Quaker Foods, Gatorade, Rockstar Energy, and Aquafina -- sold in more than 200 countries. This globally diversified profile has contributed to PepsiCo's long history of steady growth.
The financial trends for 2024 were solid. For the period ended Dec. 31, despite flat beverage volumes year over year, PepsiCo has managed to effectively execute pricing initiatives while managing its sales mix to generate a 2% year-over-year increase in organic revenue. Europe and Latin America have been a growth driver, balancing mixed results from North America operations. A major theme for PepsiCo has been its "Faster, Stronger, and Better" initiative.
The ongoing effort aimed at streamlining the business, investing in digital capabilities, and improving its supply chains to build more sustainable growth appears to be paying off. Core earnings per share (EPS) for 2024 reached a company record of $8.16, up an impressive 9% from 2023. For 2025, the company expects further gains, targeting organic revenue growth in the "low-single-digits" alongside a "mid-single-digit" increase in core EPS.
Image source: Getty Images.
Compelling value and an attractive yield
When the stock market sells off, it's natural for investors to feel a bit apprehensive, particularly when seeing wild swings in major indices like the Nasdaq. However, it is important not to lose track of the big picture, where the best method to overcome periodic bouts of market volatility is to maintain a disciplined, long-term investment outlook. High-quality companies -- those with strong fundamentals, consistent profitability, and reliable free cash flow -- are often best suited to navigate across market cycles.
PepsiCo fits that bill and could even benefit from a shifting market environment where tech stocks lose favor against more resilient consumer staples names. With its international footprint, the company may also be relatively isolated compared to trends specific to the United States.
What I like about the stock is its current valuation, trading at around 19 times its consensus 2025 earnings per share. That's a level well below the company's five-year average multiple, which is closer to 26. By this measure, there is a case to be made that the stock is undervalued, assuming the company stays on track to achieve its financial targets.
Furthermore, PepsiCo offers shareholders a 3.5% dividend yield through its $1.36 quarterly payment. Impressively, PepsiCo is part of an exclusive group of stocks known as Dividend Kings, having increased its annual payout for the past 53 consecutive years.
PEP PE Ratio (Forward) data by YCharts.
The big picture for investors
PepsiCo stock appears to be at a sweet spot, offering a bargain valuation with long-term growth potential, which is an excellent combination to complement a diversified portfolio. Regardless of whether the stock market weakness continues with more downside in the near term, or is set to stage a big rebound on the horizon, I believe PepsiCo is well-positioned to reward shareholders in the long run.
