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According to reports, both PepsiCo (NYSE: PEP) and Pepsi Bottling Group (NYSE: PBG) received an upgrade from Stifel Nicolaus. Both are now placed in the "buy" category. I'm sure the companies are happy to be away from the depressing "hold" moniker. The price targets on Pepsi and Pepsi Bottling Group are $64 and $37, respectively. As of this writing, Pepsi was priced at $54.82 while Pepsi Bottling Group's last bid was $33.71.
As can be seen, if Stifel Nicolaus turns out to be right, then traders might have a winning transaction on their hands. But one thing that must be remembered is the arbitrage game going on here. Pepsi wants to buy Pepsi Bottling Group. The latter is, of course, arguing for a higher purchase price.
Professionals love arbitrage opportunities. They make their bets, and if they're smart, they can make a lot of money. They do their homework, and make sure they've covered every angle.
I think most individual investors should be very wary of arbitrage situations. Including this one. I would not buy either PepsiCo or Pepsi Bottling Group on the back of this upgrade. For two reasons. First, the stocks haven't really reacted to the headline. Both are up much less than 1%, and volume isn't cool. Second, if the deal gets called off, then buyers at this point in the game would have some real risk to a short-term loss.
If you're interested in PepsiCo, buy it for the long-term dividend-reinvesting thesis. I own Coca-Cola (NYSE: KO) in the hopes of having a nice effective-yield investment down the line. I am not interested in bottlers, since they tend to have higher capital requirements.
The decision is yours, but in my opinion, I don't see a great trading opportunity here; I only see a risky one.
Disclosure: I own Coca-Cola; positions can change without notice.
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