Its Frito-Lay division is worth mentioning. As the world’s biggest snack food company, it holds 40% of the market share and its presence is huge. In many countries, its brands stand for generic snack names as well, and will most likely gain further share of the market as the economy improves.
One aspect that is central to PepsiCo, Inc. (NYSE:PEP)’s success is its direct store delivery system, which has provided it with closer contact with retailers and consumer trends. This relationship was further enhanced by the acquisition of its two main bottlers in 2010.
Several other long-term growth catalysts can be found within PepsiCo, Inc. (NYSE:PEP), including a strong presence in developing economies that are bound to increase their demand for unnecessary consumption goods like cola beverages and salty snacks and several cost reduction initiatives. Yielding 2.71% in dividends and a history of reinvesting money into the business while still repurchasing stock, I’d recommend buying PepsiCo shares while they are still reasonably valued.
A new challenge in the energy drink market
Monster Beverage Corp (NASDAQ:MNST) might have come to take Dr Pepper Snapple Group Inc. (NYSE:DPS)’s place as the third most popular beverage brand in the U.S. Its origin as a fresh juice company has been left way behind, as it is now the second largest energy drink company in the world. With energy drink sales rocketing over the past decade, combined with its asset-light business model that utilizes third-party manufacturers and distributors to market its products, returns on invested capital rose to over 40% last year and are expected to average above 50%, versus The Coca-Cola Company (NYSE:KO)’s 22%, over the next five years (Morningstar Analyst Research).
Plenty of growth opportunities remain both in U.S. and overseas markets, as average annual servings of Monster Beverage Corp (NASDAQ:MNST) products are considerably below its competitors’. Red Bull, its main rival, operates in double the amount of countries than Monster Beverage Corp (NASDAQ:MNST) and generates almost 10 times Monster Beverage Corp (NASDAQ:MNST)´s revenue in overseas markets. International expansion provides plenty of room, especially in countries not yet penetrated. By 2020, the firm´s international sales could reach over two-fold the current value.
However, I would still recommend a hold on this stock, but not losing track of its performance. Main reasons not to venture would be a higher valuation than some of its main peers, significant dependence on its competitors to distribute its drinks (quite paradoxical and not very convenient, as you might imagine), regulation related risks, and private-label (mainly local) competition on pricing.
Nevertheless, if the stock price falls, I would buy into this firm that offers the highest expected growth rate among the analyzed companies: 15% per year over the next five years. Just wait for an entry point and take a chance, you might be surprised by the upside.
