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DivMonk (85.32)

Coke vs. Pepsi



March 19, 2010 – Comments (4) | RELATED TICKERS: KO , PEP

I recently posted a stock analysis of Coca Cola here, and it is one of the companies in my portfolio. 

I'm interested in hearing what people think about Pepsico and Coca Cola- which one, if either, is the better investment right now?  I think both are solid, but I'm in favor of Coke.  

Coke isn't exactly cheap at the moment, but Pepsico's valuation is catching up to Coke's, and Coke is undervalued compared to historical norms.  Coke deserves somewhat of a premium based on its international super-brand status in 200 countries, conservative balance sheet, and a higher dividend yield than Pepsico.  

Over the past few years, Pepsico has indeed performed better as they have made healthy acquisitions, increased dividend payouts more quickly than Coke, and took the high road when it comes to serving their products in schools.  

Lately, though, I think Coke is back on top.  Pepsi's dividend increase between 2008 and 2009 was only 4.6%, whereas Coke's was nearly 8%.  Going forward, Coke increased their 2010 dividend by another 7.3%, though we won't find out what Pepsi increases theirs by until next quarter.  Coke has finally caught on to the fact that it needs to focus on healthier brands, and is attempting a large juice aqusition in Russia of Nidan.  Coke also owns brands like "Simply Orange" and other fruit juices that offer healthy, not-from-concentrate beverages.  Coke has way more exposure to China than Pepsi.

I like Coke's dividend yield, dividend growth, conservative balance sheet, international exposure, healthier aquisitions, and the fact that they stick to the high-margin beverage industry instead of expanding into snackfoods.  Coke also has more tangible 10-year goals than Pepsi, with their "2020 Vision". 

Coke currently has a 4-start rating in caps, while Pepsi has 5-star.  I'm interested in hearing which one people think is a better pick right now, for the long-term, and why. 

4 Comments – Post Your Own

#1) On March 19, 2010 at 4:44 PM, lemoneater (55.32) wrote:

I thought that the major difference between KO and PEP is that PEP has a more diversified product line, not just beverages, but also snacks. If I remember correctly, PEP owns Quaker Oats and Frito Lay.

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#2) On March 20, 2010 at 7:55 PM, DivMonk (85.32) wrote:

That is indeed true. 

But what that also means is that Pepsico's net profit margin is only 14% compared to Coca Cola's 22%.  Snack food is a lower margin business and is more vulnerable to raw food cost changes.  

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#3) On March 20, 2010 at 8:13 PM, Simbalion200 (< 20) wrote:

Your analysis (R3quiem) is excellent and speaks for itself.  I think both companies are sound, but, if you must choose bewtween the two, I would favor COKE. I think the price of COKE stock will rise considerably.  I think PEPSI's stock price will rise as well, albeit a little slower.  I offer this humle compromise...own them both.

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#4) On March 26, 2010 at 9:45 PM, HarryCaraysGhost (79.49) wrote:


Which one do you drink?

Buy that one.

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