Morgan Stanley’s Highest Conviction Stocks: Top 20 Stocks To Buy

18. PepsiCo, Inc. (NASDAQ:PEP)

Share Price Upside: 7%

Number of Hedge Fund Investors In Q2 2024: 65

PepsiCo, Inc. (NASDAQ:PEP) is one of the biggest carbonated beverage providers in the world. This provides it with key advantages in the global beverage industry, which come in the form of well oiled supply chains, low costs through economies of scale, brand recognition to drive product sales, and financial resources in the form of $10 billion in cash to invest in new products. At the same time, these advantages also mean that PepsiCo, Inc. (NASDAQ:PEP) has to manage its costs and growth to satisfy investors. Over the past couple of years, it has grown revenue by 30% between 2020 and 2023 on an absolute basis as high inflation allowed it to raise prices. This growth has been accompanied by a roughly 26% share price growth over the same time period. Moving forward, as prices come down, PepsiCo, Inc. (NASDAQ:PEP) might find it difficult to sustain this revenue growth. As a result, one key factor driving its hypothesis is margins, as the firm tries to keep prices sticky and lower costs to increase shareholder returns.

Artisan Partners mentioned PepsiCo, Inc. (NASDAQ:PEP) in its Q1 2024 investor letter. Here is what the firm said:

“In the demographics/consumer trends theme, slowing sales volumes led us to focus more on services versus goods. As an example, we sold our position in food and beverage leader PepsiCo given slowing growth in its underperforming core beverage business, one which generates about 60% of revenues. Adding to the uncertainty of growth prospects beverages, PepsiCo was forced by local lawmakers and industry wholesalers to shift to a new distribution model during the rollout of Hard Mtn Dew, a new line of drinks that combines Mountain Dew with malt liquor.”