Sunday, May 11, 2008

PEP looks attractive

In a previous analysis of PEP Cola Wars - Coke versus Pepsi, i concluded that PEP is a buy on dips below $68.

"Overall Pepsi has shown a much bigger progress than Coke over the past 10 years. In addition, it’s trading at a bargain multiple relative to its biggest competitor. And last but not least, its dividend growth is much higher than Coke. I would consider adding to Pepsi on dips below $68. I might also consider adding to Coca-Cola below $51."

Over the past several weeks the company has traded below 68 on a couple of occasions. I am considering buying some PEP this week, as long as the price is below $68.

In addition to that PEP recently announced an increase in its annual dividend from $1.50 to $1.70, which is a healthy 13.33% raise. The quarterly dividend of $0.425 is payable June 30, 2008, to shareholders of record on June 6, 2008.The ex-dividend date is June 4.

Disclosure: I do not own PEP or KO at the moment. This analysis is not a recommendation to buy or sell securities. Always consult a financial professional before investing.

Relevant Articles:

- Cola Wars - Coke versus Pepsi

- Diversification Matters

- Dividend Growth Stocks Watchlist

- My Strategy

3 comments:

  1. Funny how much we think alike. I just bought some PEP on Friday when it went under 67.

    I enjoy your blog. I own or have researched just about every stock you have mentioned. My only suggestion would be to add a little qualitative analysis because the numbers are just a starting point and you also need to have a long-term thesis about the business. I'm sure you must have an opinion about the prospects' businesses or their competitive position therein and I'd like to hear it.

    For instance, while GCI's numbers look interesting I'd much rather take my chances on JNJ selling bandaids, drugs and hip replacements for the next twenty years than GCI profitably selling newspapers during that time.

    ReplyDelete
  2. Dan,

    First of all thanks for your comments. I have thought about adding qualitative analysis but I have always feared that this will make my posts too lenghty and unreadable.
    In addition, I do think that my numbers are a good starting point in a stocks research. What my readers do with each analysis is up to them; to me numbers provide an objective statement and could easily be fed into my model. Qualitative analysis in my opinion is useful but it is rather subjective; Gannett is a great example of that. The company does own newspapers around the US and UK, both large and small ones. Qualitatively, we are constatnly bombarded with information about the demise of the newspaper industry. But by looking at the financials, I was able to get a nice grasp about the real condition of the company, apart from my emotions/fears about GCI. The numbers did provide an objective statement, telling me that the dividend is well covered, and that the stock is undervalued.

    What my analysis might be lacking is that I don't discount the growth portion of a given company. For example, JNJ is paying a market yield, while GCi is paying an above average yield. however, JNJ is expected to better its financial position, while GCI i expected to be flat to slightly down in terms of its EPS. Sure JNJ is likely to give you both a better EPS growth, DPS growth and share price growth than GCI. But I do think that each company is an essential part of your dividend portfolio.
    You can't be too concentrated in one industry or one stock.

    ReplyDelete
  3. I recently added some more PEP as well. I am also looking at ABT and BUD for new positions.

    ReplyDelete

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