Pepsi: Pull-Back Is Buy Opportunity

In addition to its namesake cola, Pepsi has successfully positioned itself in the health and sports drink segment with its Gatorade and Aquafina brands, and Tropicana is still the standard in branded, mass-appeal orange juice. Further, any moderation in commodity inflation would enhance margins in 2010.

To be sure, the company's proposed integration of two of its bottlers, which should be completed by mid-FY2010, represent one hurdle, but it's not nearly enough to blot-out the favorable story for this leading beverage and snack company. The First Call FY2009/FY2010 EPS estimates for PEP are $3.71 to $4.18.

Technically, as noted Pepsi's stock has pulled back after shooting through $60 psychological resistance in December 2009, but view that dip as year-end, profit-taking by short-term institutional investors. The dip below the 50-day moving average is being monitored: if it persists, that would be a bearish signal, but as of now, the move lower looks like a correction.

2010 Outlook: Pespi is a long-term play, but if you're looking to sell PEP within the year, take your profits after it rises to $69, if it fails to move above $70.

Stock Analysis: Pepsico Inc. is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in PEP now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your PEP position before March 2010. Sell/stop loss if you were to buy shares in this company: $27.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.