Pondering if PepsiCo's 2024 Stock Dip Makes It More Attractive than Coca-Cola in 2025?
As we stride into 2025, investors on the hunt for undervalued companies may be considering lagging stocks, such as beverage titans Coca-Cola (KO 0.26%) and PepsiCo (PEP 0.49%). These giants have grappled with market pressures, resulting in a decrease of approximately 14% from their respective highs for both companies.
While both companies share overlapping businesses, it's rarely advisable to have both in the same investment portfolio. So, which of these storied brands represents the better buy for 2025?
The Distance of Descent
When measuring their fall from grace, PepsiCo has experienced a marginally more turbulent descent than Coca-Cola. The trajectory of PepsiCo's dip from its peak has been steeper, and, as of now, it's down about 10% year-to-date. In contrast, Coca-Cola's equivalent decline is around just 5%.
Pulling back the lens further reveals a more distinct picture. PepsiCo's decline from its three-year high is approximately 22%, whilst Coca-Cola's corresponding drop is around 14%. Despite Coca-Cola's rebound from late 2023, which carried over into 2024, PepsiCo hasn't witnessed a similar bounce. Consequently, investors seem to bear a noticeably less favorable disposition towards PepsiCo.
This sentiment extends to their respective valuations. PepsiCo's price-to-sales ratio currently sits roughly 18% below its five-year average. Meanwhile, Coca-Cola's P/S ratio marginally underperforms its five-year average by roughly 7%. Analogously, PepsiCo's price-to-earnings ratio is about 14% beneath its five-year average, whereas Coca-Cola's P/E ratio hovers only 2% below the same metric.
Furthermore, the dividend yields of both companies distinguish themselves. PepsiCo provides a yield of 3.5% at current prices, whereas Coca-Cola offers a slightly lower yield of 3.1%. On an absolute basis, PepsiCo's dividend yield appears more appealing. However, it's worth noting that while Coca-Cola's current yield aligns with its historical trends, PepsiCo's yield has reached an all-time high.
Similarities and Differences
Understandably, these companies are not interchangeable despite their overlapping businesses. Nonetheless, they share numerous similarities. The duo is distinguished as Dividend Kings, consistently increasing their dividends annually for more than 50 years. This esteemed milestone signifies the ability to weather industry ups and downs while continuing to reward shareholders.
However, they present significant differences as well. Coca-Cola has outpaced PepsiCo in terms of revenue growth over the past few years, with a faster clip. Conversely, PepsiCo's earnings growth rates have remained static, while Coca-Cola has exhibited dramatic expansion. This dynamics, punctuating investor preference for Coca-Cola, is rationalized by the company's growth trajectory and financial performance.
Additionally, Coca-Cola primarily focuses on beverages, while PepsiCo extends its reach into various revenue streams through the sale of snacks, packaged food products, and beverages. As a result, the latter presents a more diversified investment opportunity, making it an ideal candidate for investors prioritizing portfolio diversification.
The Final Verdict
In 2025, neither Coca-Cola nor PepsiCo should be regarded as unsuitable investment options. However, based on performance, valuations, and diversification concerns, PepsiCo might emerge as the preferable choice for investors seeking maximum income, value opportunities, and diversified holdings.
In the context of financial investments, the ratio of PepsiCo's price-to-sales and price-to-earnings is currently more favorable compared to its five-year averages, making it a potential undervalued stock in 2025. For those interested in diversity, PepsiCo's business model spans beyond beverages into snacks and packaged food products, providing a more diversified investment opportunity. Investors looking for higher dividend yields might find PepsiCo's current offering of 3.5% more appealing than Coca-Cola's 3.1%, although it's worth noting that PepsiCo's yield has reached an all-time high. Regarding investing in stocks, it's essential to remember that interchangeable stocks do not exist, and while both Coca-Cola and PepsiCo share some similarities, they present unique characteristics that might make one a better fit for a particular investor's financial goals and risk tolerance in 2025.
