Refreshing Your Portfolio in 2025: A Tale of Two Beverage Giants
As we enter a new year, investors are on the lookout for attractively valued companies to revamp their portfolios. Two beverage behemoths, Coca-Cola and PepsiCo, have been under pressure in 2024, making them potential candidates for a fresh start.
A Year of Struggle
Both Coca-Cola and PepsiCo have fallen around 14% from their 52-week highs, with PepsiCo’s decline being slightly steeper. While Coca-Cola is up about 5% year to date, PepsiCo has dropped over 10%. When we zoom out to a three-year perspective, PepsiCo’s decline is a more substantial 22%, compared to Coca-Cola’s 14%.
Valuation Gap
The negativity surrounding PepsiCo is reflected in its relative valuations. Its price-to-sales ratio is nearly 18% below its five-year average, whereas Coca-Cola’s P/S ratio is only about 7% lower. Similarly, PepsiCo’s price-to-earnings ratio is about 14% below its five-year average, while Coca-Cola’s P/E is roughly 2% below its average.
Dividend Yields: A Key Differentiator
PepsiCo’s dividend yield stands at 3.5%, outpacing Coca-Cola’s 3.1%. While Coca-Cola’s current yield is roughly middle of the road, PepsiCo’s is near its all-time high.
Beyond Beverages: Diversification Matters
PepsiCo’s diversified portfolio, comprising beverages, snacks, and packaged food products, sets it apart from Coca-Cola’s beverage-focused approach. For investors seeking broad exposure to the consumer staples sector, PepsiCo offers a unique advantage.
Growth and Earnings
Coca-Cola has demonstrated faster revenue growth and dramatically faster earnings growth rates compared to PepsiCo. This disparity explains why investors currently favor Coca-Cola.
A Value-Oriented Choice
If you’re drawn to value stocks, PepsiCo’s attractive valuation, higher dividend yield, and diversification make it an appealing choice. Both companies are well-run and worthy of long-term investment, but PepsiCo’s unique strengths make it a compelling option for 2025.
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