These two leaders in consumer staples have taken different approaches to their thriving businesses.
There aren’t many places you can visit globally and not run into products from Coca-Cola (KO 0.55%) or PepsiCo (PEP 0.18%). They both have a stronghold on nonalcoholic beverages, and PepsiCo has built a solid portfolio of snack brands. It’s one of the more iconic rivalries in any industry.
Over the years, both Coca-Cola and PepsiCo have rewarded their investors. However, if you were to choose one in a bull market, which would you trust more? These two Motley Fool contributors look at the bullish case for each.
Sometimes, less is more for a business
Stefon Walters (Coca-Cola): The Coca-Cola Company has been around since 1892, and its flagship soda is one of the most successful products of all time. It’s not a stock that investors seeking high growth would gravitate toward, but it has had undeniable success over the decades, and its dividend is one of the more reliable you’ll find, with 62 consecutive years of increases.
The major difference between Coca-Cola and PepsiCo is that the former focuses solely on beverages, and that’s why I prefer it. A slimmer business allows it to operate more efficiently.
It might surprise some to see just how much more revenue PepsiCo brings in than Coca-Cola. In their latest quarters, PepsiCo’s revenue was $10 billion more. That doesn’t translate directly to profitability, however, with their operating income (profits from their core operations) being neck and neck.
KO revenue (quarterly) data by YCharts.
Focusing solely on beverages allows Coca-Cola to perfect its craft and understand consumer preferences better because it’s not stretching its resources thin.
Despite the success of its flagship sodas, Coca-Cola has shown it’s willing to adapt to changes in consumer preferences. It has embraced alcoholic ready-to-drink beverages (Simply Spiked, Topo-Chico hard seltzer, Fresca Mixed) and other options like Fairlife milk and plant-based AdeS, both of which are relatively new categories.
Coca-Cola’s financials are as rock solid as it gets, and it’s a company that you can trust for the long haul. Coke’s products sell regardless of the economy, and it has premium brands that give it pricing power to help during slower periods. That’s a winning recipe in the long term.
Strength in diversification
Jeremy Bowman (PepsiCo): Both Coca-Cola and PepsiCo have two of the best-performing stocks of all time, and their duopoly in beverages has helped both of them be successful.
They fill similar needs as dividend-paying, recession-proof consumer staples stocks, but Pepsi has an edge because it is more diversified than Coca-Cola.
Of the two, only Pepsi has exposure to food through brands such as Frito-Lay and Quaker as well as international food brands, and its beverage portfolio is less concentrated in soda than Coca-Cola’s.
Pepsi is also executing its recent Pep+ plan, which calls for end-to-end transformation across the company with a focus on sustainability. And the company is delivering solid growth on the top and bottom lines. PepsiCo is targeting core constant-currency earnings per share of at least 8% this year, and organic revenue growth of approximately 4%.
It has performed well in spite of weak consumer spending due to high inflation around much of the world, and the company has successfully passed along price increases as needed.
What’s especially attractive about a business like PepsiCo is that it can count on steady growth into the future because it sells consumable products, the global population continues to grow, and it has the marketing and distribution muscle to maintain its leadership in the industry as it has for over a century.
Lastly, it is one of the most reliable dividend stocks on the market, having raised its payout each year for 52 years, making it a Dividend King. It now has a dividend yield of 3.2%.
If you’re looking for steady grower that pays a solid dividend and is recession-proof, it’s hard to find a better choice than PepsiCo. I certainly prefer it over Coke.
Jeremy Bowman has no position in any of the stocks mentioned. Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
