If you’re looking for a resilient investment during this pandemic, consider PepsiCo (NASDAQ: PEP). It’s not simply a beverage company, as many people assume; it also owns the Frito-Lay family of snacks and the Quaker Foods business. In fiscal 2019, PepsiCo generated 46% of its revenue from beverages and 54% from foods. It’s also very much a global company, with 42% of revenue coming from outside the U.S. in fiscal 2019.
To grasp just how dominant PepsiCo is in the food and beverage business, check out some of its brands: Pepsi-Cola, Lay’s, Doritos, Aquafina, Mountain Dew, Gatorade, Pure Leaf, Tropicana, Quaker Oats, Brisk, Smartfood, Ruffles, Cheetos, Fritos, Tostitos, Rold Gold, Funyuns, Life cereal, Cracker Jack, Rice-A-Roni, Sierra Mist, 7UP, Naked, Near East, and Walkers. Fully 23 of its brands each generate more than $1 billion in annual revenue.
PepsiCo isn’t resting on its laurels. It’s boosting its popular energy-drink offerings, and it’s building a direct-to-consumer revenue channel via its PantryShop.com and Snacks.com websites.
PepsiCo’s dividend recently yielded almost 3%, and that payout has been increased annually for 48 consecutive years. (The most recent increase was 7%.) The company’s market value was recently about $190 billion, and its forward-looking price-to-earnings (P/E) ratio was recently in the mid-20s; these suggest that it’s not a screaming bargain, but it’s not wildly overpriced, either.
Ask the Fool
Q: As a new investor, I wonder: Is it better to buy stocks under $20 per share, like Fitbit, or higher-priced stocks such as Sherwin-Williams (recently near $680 per share), that have been around longer and have good track records? It seems you could buy a lot more shares in lower-priced stocks and make more money. – John S., online
A: You need to separate the price of the stock from the rest of your thinking. The price doesn’t matter all that much – unless it’s below about $5 per share, in which case you’re probably looking at a risky “penny stock.” Understand that huge, old companies can have low share prices: Wells Fargo stock was recently near $25. Younger companies can have high share prices: Amazon.com shares were recently near $3,300 apiece.
Furthermore, a $20 stock may be grossly overvalued and likely to fall, while a $300 stock may be a great bargain, destined to hit $900 in a few years and $2,000 after that. Focus on each company’s fundamentals; study it to determine if it’s healthy and growing, and if it’s trading at a reasonable, or even low, price. Don’t worry about the number of shares you buy, either – you can double or triple a $1,000 investment whether you buy a single $1,000 share or 100 $10 shares.
Q: What’s a 529 plan? – B.H., Orem, Utah
A: It’s a tax-advantaged, usually state-based account you can set up to save for educational expenses such as college. You don’t have to use your own state’s plan, either – you can research other states’ offerings and choose the best plan for you. Learn more at SavingforCollege.com and CollegeSavings.org.
My smartest investment
My smartest investment was buying shares of cloud-based communications specialist Twilio at $25 each. The company looked like it had great people, great values and great innovative services. – T.C.S., online
The Fool responds: A combination of great people, values and innovations – that’s a terrific start to finding a solid investment. You always want sound management, and while that can be hard to evaluate, you can start by reading some of management’s annual letters to shareholders to get a sense of how candid and communicative they’re being. Twilio CEO Jeff Lawson has spoken at length about the company’s values, and its website lists 10 of them, such as “Wear the customer’s shoes” and “No shenanigans.”
Innovation can help a company succeed as it responds to a changing marketplace. Innovation can even help it change the marketplace itself, such as when Apple introduced the iPod. It’s exciting when you spot companies innovating at this level, but don’t buy into them at any price; aim to buy them when they seem undervalued. Twilio stock, recently trading near $240 per share, has risen sharply in a few years, and bulls expect much more long-term growth. Bears see the stock as overvalued, though, and point out that the young enterprise is not yet profitable: Its revenue is growing rapidly, but it’s plowing its cash into further growth. (The Motley Fool owns shares of and has recommended Twilio.)
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