PepsiCo (PEP): Add some 'pep' to your portfolio

This post is one of six articles on beverage-related stocks. Here are five other investment ideas to sip on.

"PepsiCo (NYSE: PEP) is feeling the heat from high commodity prices as well as penny-pinching consumers," says Chuck Carlson, the advisory industry's top authority on dividend reinvestment plans.

The editor of The DRIP Investor suggests, "The stock has pulled back more than 18% from its 52-week high. Investors should take advantage of the current price lull to do buying in these shares."

"The decline follows weakness in a variety of consumer-related stocks. However, while near-term price action will likely be limited, the stock's long-term prospects remain sound.

"The firm has strong market positions in its soft-drink, sport-drink, and snack-food businesses. Record pro? ts are expected this year and next. A rising dividend stream enhances appeal.

"PepsiCo is one of the world's largest food and beverage companies, with 2007 revenue of more than $39 billion. It has 18 brands that generate $1 billion or more in annual revenue.

"Its international business generated around 40% of sales and 29% of operating profits in 2007. The international side has been a major growth engine, with PepsiCo International showing 27% revenue growth in the first quarter. Thus, these shares have lost some of their defensive appeal during the recent market downturn.

"Despite higher raw-material costs, PepsiCo should post record pro?ts in 2008 of at least $3.72 per share, up from $3.38 in 2007.

"The stock currently trades at 17 times expected 2008 results. That is not necessarily bargain basement but is a fair valuation for a company that consistently produces solid revenue and earnings growth.

"The consensus earnings estimate for 2009 is $4.12 per share, but that number could prove conservative should the firm catch a break on commodity prices, which are due for a pullback.

"PepsiCo's steady earnings growth has fueled consistent dividend increases. It recently boosted its dividend 13% to an annual rate of $1.70 per share. It was the 36th annual dividend increase for the company.

"The stock's current yield is 2.6% .I don't see a lot of downside in the stock, perhaps to the $60 level. We view these shares as capable of returning to the $70s over the next 12 months. Investors should take advantage of the current price lull to do buying in these shares.

"DRIP investors take note that PepsiCo offers a direct-purchase plan whereby any investor may buy shares directly, the first share and every share. The plan has a $10 one-time enrollment fee but no ongoing purchase fees."

Steven Halpern's TheStockAdvisors.com offers a daily look at the latest market commentary and favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.