We recently compiled a list of the 10 Blue-Chip Stocks to Buy at 52-Week Lows. In this article, we are going to take a look at where PepsiCo, Inc. (NASDAQ:PEP) stands against the other Blue-Chip Stocks to Buy.
Despite the stock market indices hitting record highs this year, some stocks edged lower and are currently languishing near their 52-week lows. While it’s common practice to stay clear of stocks under pressure, it could sometimes be a costly error. When the shares of solid companies become unpopular due to macroeconomic factors and concerns, it presents a buying chance that value investors seize.
Deteriorating macroeconomics was the catalyst behind some blue chip stocks imploding in a year when the overall market traded higher. As the high interest rate environment helped push inflation close to the recommended 2%, some companies felt the blunt even as the S&P 500 rallied up to 17%.
READ ALSO: 8 Best Warren Buffett Stocks to Buy According to Analysts and 8 Best Value Stocks to Invest In According To Warren Buffett.
Companies whose core business depend on consumer purchasing power were the hardest hit as consumers became cautious amid the high inflation and liquidity pressures. Likewise, as the U.S. economy came under pressure amid the high interest rates depicted by a struggling U.S. labor market and manufacturing sector, investors shunned stocks in the consumer cyclical and energy sectors susceptible to deteriorating economic conditions.
Fast forward, the Fed swinging into action and initiating a 50 basis points interest rate cut to try and prevent the U.S. economy from plunging into recession has presented a new lease of life in the markets. According to market bull and head of research at Fundstrat Global Advisors Tom Lee, the Federal Reserve cutting cycle has the potential to set up the market for a strong rally heading into year-end.
Large-cap stocks, hard-hit by high interest, increasingly present undiscovered investment opportunities in a volatile market. Even though a stock that is at or close to a recent low may seem like a risky investment, large-cap stocks frequently reflect market sentiment rather than underlying problems.
With the overall market remaining bullish as interest rates around the globe drop, professional investors are increasingly taking note of the best blue-chip stocks to buy at 52-week lows. Astute investors know these large-cap stocks’ current valuations might not accurately represent their long-term potential, as most appear to be trading at a discount.
According to Canaccord Genuity analyst Michael Welch, the fourth quarter presents one of the best opportunities to buy undervalued stocks, as it is usually the strongest quarter for stocks. The fact that the quarter often ends positively in three of every four years underscores why investors should be bullish about blue-chip stocks that have pulled back significantly and are showing signs of bouncing back.
According to Welch, now is not the time to fight the Fed or the tape as the market shows signs of edging higher. The analyst believes now is the time to position one’s portfolio for a potential fourth-quarter rally. Investors have a unique opportunity to secure higher dividend yields and long-term capital gains when the market recovers and high-quality stocks bottom out after the recent slump.
Nevertheless, Lee of Fundstrat Global Advisors believes investors should be cautious as the uncertainty around the U.S. presidential election could turn out to be a significant headwind. The uncertainty around former president Donald Trump and Kamala Harris’s economic platforms should make the markets weary and curtail significant gains.
Our Methodology
To make our list of blue chip stocks at 52-week lows, we ranked large-cap firms trading on the NYSE and NASDAQ whose shares are trading at new 52-week lows or are at most 0-10% higher. The blue-chip stocks at 52-week lows with the highest market capitalization were selected, and their share prices are also mentioned. Finally, we ranked the stocks in descending order based on market cap.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
PepsiCo, Inc. (NASDAQ:PEP)
52 Week Range: $ 155.83 – $183.41
Current Share Price: $169.74
Number of Hedge Fund Holders: 65
Market Capitalization as of September 30: $233.19 Billion
PepsiCo, Inc. (NASDAQ:PEP) is a consumer defensive play that engages in manufacturing, marketing, distributing, and selling various beverages and convenient foods. It is one of the blue-chip stocks that felt the full impact of high inflation and a spike in interest rates affecting consumer purchasing power.
While the company has always played second fiddle to Coca-Cola in the multibillion beverage sector, it remains in a strong industry position. The company has been strengthening its position in the energy drink segment by acquiring Rockstar Energy for $3.85 billion in 2020 and investing $550 million in Celsius Holdings in 2022.
Amid the acquisition spree, its sales have improved significantly, with its trailing 12 months’ revenues soaring to $92.1 billion, representing an all-time high and a 41% increase from sales of $65.5 billion in 2012.
Additionally, PepsiCo, Inc. (NASDAQ:PEP) is also the market leader in the salty snack market segment. With brands ranging from Lays to Rold Gold, the company’s snacks are a must-have on retailers’ shelves, from grocery stores to convenience stores.
PepsiCo, Inc. (NASDAQ:PEP) is committed to enhancing its operational efficiency and effectiveness by cutting expenses and reinvesting the saved money to grow its scale and fundamental strengths. It expects to achieve its productivity goals by leveraging savings from restructuring efforts.
The firm is also well-placed to take advantage of its global footprint. It accounts for a large share of its earnings from sources beyond the United States. Developing and emerging economies offer significant potential for PEP because of their relatively low consumption per person. The firm has been increasing its presence in these developing/emerging economies through customized distribution strategies and introducing relevant products that add value locally.
Trading at a price-to-earnings multiple of 19.8%, the stock is valued at a discount compared to the industry average of 21.5x. Additionally, PepsiCo, Inc. (NASDAQ:PEP)’s dividend yield of 3% is much higher than the S&P 500 average of 1.2%, affirming why it is one of the best blue chip stocks to buy at 52-week lows for passive income.
By the end of Q2 2024, 65 hedge funds included PepsiCo, Inc. (NASDAQ:PEP) in their portfolios with total stakes amounting to $4.35 billion. Fisher Asset Management emerged as the largest stakeholder, with a position worth $1.22 billion.
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.”
Overall PEP ranks 10th on our list of 10 Blue-Chip Stocks to Buy at 52-Week Lows. While we acknowledge the potential of PEP as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PEP, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
