Motley Fool: Diversified soft drink giant a good defense

PepsiCo (NYSE: PEP) sells a wide selection of carbonated drinks, juices, teas, sports drinks, bottled water, packaged foods and Frito Lay snacks, and 22 of its brands each generate more than $1 billion in annual sales – including Cheetos, Aquafina, Tropicana, Quaker, Gatorade, Lipton and Mountain Dew. In periods of economic uncertainty, it’s a defensive investment that should perform well over the long run.

PepsiCo has been challenged by slumping soda consumption in the U.S. and elsewhere, but it’s countering that decline with healthier versions of its drinks and packaged foods, and it’s acquiring or creating new products for health-conscious consumers. The company is also making significant progress in creating a more efficient business, and it has the opportunity for continued supply-chain and automation improvements that will benefit earnings and cash flow.

PepsiCo’s infrastructure advantages help it produce goods at lower costs than those of smaller competitors, and its powerful brands give it pricing strength. Combine these competitive advantages with the company’s potential for international growth and ongoing cost savings thanks to automation and other initiatives, and the company still has avenues to meaningful earnings growth.

Even if the market heads south for a while, PepsiCo investors are still likely to continue enjoying its dividend, which has been increased annually for 45 years and recently yielded 2.7 percent. (The Motley Fool owns shares of and has recommended PepsiCo.)

Ask the Fool

Q: Where can I look up a company’s recent stock splits? – R.W., Binghamton, New York

A: A good place to start is with the company itself. You can call its Investor Relations department to ask, or you might explore the “Investors” section of its website.

If you’re online, head to finance.yahoo.com, enter the company’s ticker symbol, and then click on “Statistics.” Scroll down and you’ll find the company’s last split and its date. You can also look up past and upcoming splits at finance.yahoo.com/calendar.

Stock splits are generally nonevents, though. The share price gets adjusted down in proportion to the increase in share count. So while suddenly owning more shares can be exciting, it’s not too meaningful. Pre-split, you might have owned 100 shares priced at $50 per share (total value: $5,000). Post-split, your 200 shares are worth $25 each, for a total of … $5,000. Not much has changed.

Q: How much of a gain should I aim for when investing in stocks? After how much should I sell? – P.L., Decatur, Illinois

A: As long as the company remains healthy and growing, consider just hanging on. Sure, you can always sell after a gain of 10 percent or 50 percent, but by hanging on, you might eventually double or triple or quadruple your investment – or do even better.

For example, if you bought into Netflix at $10 per share in 2010 and sold after doubling your money a few months later, you would have missed out on further gains. The stock was recently at $170 per share.

Keep up with each holding’s progress and prospects, and do sell whenever you’ve lost faith in the company – or if you will need that money within a few years.

My dumbest investment

I had read several articles about the opportunities involved with buying penny stocks. I did some research and found a penny stock I figured was worth a gamble. It was cheap: Buying 100 shares cost me a total of $77.90.

Today, I understand why they are called penny stocks. My cheap gamble is now worth exactly $0.07. The stock dropped so quickly that I couldn’t even sell the sucker – the trading commission would have cost me more than the money I would make. I’m much more cautious now. It was a cheap lesson, but well-learned. – B.A.S., Simpsonville, South Carolina

The Fool responds: The articles you’ll find that discuss the opportunities in penny stocks are often published by people (or their newsletters) pushing particular penny stocks that they currently own. They hope that naive investors will get excited and buy shares (after all, you can sometimes buy thousands of shares for just a few hundred dollars!), with that demand driving the stock price up. Then they’ll sell their shares at a profit, sending the share price down again and often wiping out the people they duped. It’s called a “pump and dump” scam.

Beware of stocks trading for around $5 or less per share, as they can be very risky. Know that even a $0.20 stock can fall to $0.02. Meanwhile, a $50 stock can be undervalued and destined to soar.