Posted on Thursday, 24th December 2009 by admin
This post is part of a special report, Top Picks for 2010, the 27th annual survey in which TheStockAdvisors.com asks the nation’s leading advisors for their single favorite stock for the new year. See all 80 stocks listed here.
“PepsiCo (PEP), my top pick for 2010, remains underrated by the market,” says Jim Stack.
The money manager and editor of InvesTech Market Analyst suggests, “All too often, it’s viewed as a stodgy soft drink company, fully reliant on its namesake soda line. That’s a misconception.” Here, he sets the record straight.
Stack explains, “In reality, PepsiCo owns some of the most sought after brands in the world, including Gatorade, Tropicana, Frito-Lay, and Doritos. It does business in more than 200 countries worldwide, including key emerging market economies like China and India.
“Perhaps most important of all, it’s a growth company with analysts expecting long-term future earnings growth of 10-12% per year.
“In recent months, PepsiCo has taken another major step forward with the pending acquisition of its two primary bottlers — Pepsi Bottling Group and PepsiAmericas.
“The acquisition provides the potential to eliminate an estimated $500 million to $1 billion in redundant costs. If those cost savings are transferred directly to the bottom line, shareholders could see a significant increase in net income of 10% to 20%.
“Of perhaps even greater benefit, the purchase brings 80% of North American beverage distribution ‘in-house.’ This move will bring management one step closer to its final customers — injecting a level of flexibility into operations not often seen with a company of PepsiCo’s size.
“The acquisition further ties together the Pepsi story — a well-run company with market leading growth positions and an attractive valuation.
“The executive suite neatly combines the beverage ‘megabrands’ such as Pepsi, Gatorade, Tropicana, and Mountain Dew with the world’s largest snack food company, Frito-Lay.
“Management then leverages these brands into international growth markets such as Latin America and Asia where sales volume increased more than 20% in 2008, and despite the most challenging world economy in decades, has seen high single-digit growth so far in 2009.
“On top of all this, Pepsi is currently trading at valuation levels not seen in 15 years. And although it’s a growth company, Pepsi still offers the dividend yield (3.0%) of a stalwart.
“Bottom line, Pepsi remains underrated by the market in general, and the bottler acquisition only enhances the company’s outlook.”
Steven Halpern’s TheStockAdvisors.com offers a free daily overview of the favorite stocks of the nation’s leading financial newsletter advisors.
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Tags: 2010, Top Picks
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