Even in a recession, people will "snack" themselves to the point of sugar highs so powerful that they will think the economy is still expanding. According to Reuters, "PepsiCo (NYSE: PEP) expects its business based on "comfort foods" to be resilient to a U.S. economic slowdown, Chief Executive Indra Nooyi said on Wednesday."
The point is probably well-founded. Soda and chips are still something people can enjoy for a few dollars. And many people are addicted to the sugar and salt. And it makes Pepsi and rival Coke (NYSE: KO) effective hedges against a downturn.
Pepsi sells for just over $69 now, down from a 52-week high of almost $80. It has a yield of 2.1% and $2.2 billion in cash and short- term investments. The company has an operating margin of about 20%. In the last quarter, operating income was $2.1 billion on revenue of $10.2 billion. Coke's financial dynamics look about the same.
All in all, this makes these stocks "safe" bets if the markets continue to fall.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
1-23-2008 @ 11:43AM
Boards0000000 said...
I agree people don't like to give up their comfort foods but in a down turn they do tend to replace them with the generic forms.