Analyst upgrades:

• PepsiCo (NYSE: PEP) was upgraded to Buy from Hold at Deutsche Bank.
• Fortress (NYSE: FIG) was upgraded at Citigroup to Hold from Sell.
• Prudential (NYSE: PUK) was lifted to Overweight from Neutral at JP Morgan.
• Keefe Bruyette upgraded Franklin Resources (NYSE: BEN) to Outperform from Market Perform and added shares to their Best Ideas List on valuation as they see an attractive risk/reward at current levels.
• UBS upgraded ASML Holding (NASDAQ: ASML) to Buy from Neutral on valuation as they believe the company remains a market leader.
• Oppenheimer raised Seattle Genetics (NASDAQ: SGEN) to Outperform from Perform on valuation following the recent weakness as they expect positive clinical news flow beginning in December.

Analyst downgrades:

• UBS downgraded U.S. Steel (NYSE: X) to Sell from Buy and lowered its target to $30 from $60 citing deteriorating U.S. conditions and concerns about the company's high fixed costs in a falling steel price environment.
• Royal Dutch Shell (NYSE: RDS.A) was downgraded to Underperform from Neutral at Credit Suisse.
  
• China Unicom (NYSE: CHU) was lowered to Underweight from Neutral at JP Morgan.

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.

Beverage stocks are often considered "defensive" in nature. After all, no matter what troubles beset the economy, people continue to eat and drink.

Granted, a recessionary environment might impact purveyors of expensive champagnes. But our focus here is on everyday canned sodas and moderately-priced beer and wine.

Of course, no report on beverages would be complete without the two giants of the field -- Coca-Cola (NYSE: KO) and PepsiCo (NYSE: PEP).

Chuck Carlson, editor of The DRIP Investor looks at Pepsi and suggests, "Investors should take advantage of the current price lull to do buying in these shares."

... Read the full article on PepsiCo

Meanwhile, Stephen Leeb, editor of The Complete Investor, looks at Coke and is attracted by both its expanding market opportunities and expanding dividend.

... Read the full article on Coca-Cola

Bottling these drinks is also big business and PepsiAmericas (NYSE: PAS) -- the world's second-largest bottler of PepsiCo beverages -- is a recent feature from quantitative analyst Vahan Janjigan, editor of The Forbes Growth Investor.

... Read the full article on PepsiAmericas

Energy drink maker Hansen Natural (NASDAQ: HANS) has caught the eye of Bill Martin. The editor of BullMarket.com finds the stock attractive because the company has recently attracted some hedge fund investors.

... Read the full article on Hansen Natural

In The Forbes International Investment Report, editor John Christy interviews Lou Gerken of Gerken Capital Associates who sees potential in FEMSA (NYSE: FMX), which produces distributes Coca-Cola, Dos Equis, Tecate Beer in Mexico.

... Read the full article on FEMSA

And Nilus Mattive in his Dividend Superstars newsletter, looks to Chilean wine maker, Vina Concha y Toro (NYSE: VCO) as a play for both growth and income investors.

... Read the full article on Vina Concha y Toro

This report is prepared by Steven Halpern's TheStockAdvisors.com which offers a daily overview of the favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.

PepsiCo Inc. (NYSE: PEP) today reported strong second quarter results as the maker of soft drinks and salty snacks such as Cheetos weathered rising commodity prices and continued to benefit from the weak dollar.

Net income rose more than 9% to $1.7 billion, or $1.05 per share, as revenue soared 14% to $10.9 billion, the Purchase, NY-based company said in a statement. The results surpassed the $1.01 profit forecast and $10.6 billion sale forecast of analysts surveyed by Bloomberg.

"PepsiCo continued to drive growth across its worldwide snacks and beverage businesses primarily through strong product innovation, well-executed pricing actions and focus on expense control and productivity." said Chief Executive Indra Nooyi, "We are proud of our first-half performance and confident that we are well-positioned to deliver on our outlook amidst a challenging macroeconomic environment."

In the quarter, PepsiCo International showed over 20% revenue growth and over 30% profit growth from prior year. A weak spot was PepsiCo Americas Beverages. The economic slowdown has hurt the business, pushing down volumes by 1%. Mountain Dew and Sierra Mist both grew in the single-digits while Pepsi fell in the mid single digits. Energy drinks were a bright spot lead by a triple-digit volume growth in AMP Energy and a 50% gain in SoBe Life Water. Gatorade also showed gains in the quarter.

Investors reacted cautiously to the earnings report because the company said it could not provide "guidance on the 2008 projected EPS growth including the impact of the mark-to-market gains or losses on commodity hedges due to the unpredictability of future changes in commodity prices." The shares are up only fractionally in mid-morning trading.

This post is part of a series on celebrity spokespeople who ended up doing serious harm to the brands they were hired to promote, or vice versa. See how we rank the 20 top spokesperson fiascos.

Ahh, Madonna. I was a teen in the late 80s and so she had me right where she wanted me: hanging on her every lyric, willing to be titillated, shocked, or otherwise addicted to her poppy music.

She had PepsiCo (NYSE: PEP) right where she wanted it, too, as a spokesperson for the would-be-edgy soda company in 1989. Pepsi and Madonna produced a very long and affecting commercial using her "Like a Prayer" song, in which Madonna watches the eight-year-old version of herself in a video dreaming of being a pop star one day.

The commercial was extremely well-done and well-received (it still gives me goosebumps today, despite those awful late-80s hairdos; that is, until the real video for "Like a Prayer" came out. It took "suggestive" to an entirely new level, what with the obvious flirtation between Madonna and a statue-cum-priest, the stigmata on her hands, and the burning crosses and racial tensions.

Pepsi pulled the ads and canceled all its appearances with the singer immediately, though I wonder if the company couldn't run the ads again now? If you can get past the salacious nature of the rumored affair with A-Rod, Madonna is not nearly so controversial today, and now the commercial seems sweet.

Read the entire series

This post is part of a series on celebrity spokespeople who ended up doing serious harm to the brands they were hired to promote, or vice versa. See how we rank the 20 top spokesperson fiascos.

In a confrontation between bombast and street cred, Fox mouth Bill O'Reilly managed to rip the Pepsi (NYSE:PEP) bottle from rapper Ludacris's live, warm fingers. In August of 2002, O'Reilly, upset with the musician's street language and what he perceived as glorification of crime and misogyny, called for a boycott of Pepsi. At the time, Ludacris was a featured representative of Pepsi, no doubt part of the companies attempt to reach out to the 18-34 demographic.

After the company dumped Ludacris in response to the boycott, Pepsi immediately stepped back into a pile of controversy by signing the rock and brain-damage icon Ozzy Osbourne, he of bat-head biting-off fame. (Nothing goes better with bat than an ice-cold Pepsi.)

O'Reilly's diatribe helped call attention to the brutality of Lucacris's lyrics, not atypical for the genre but fear-inspiring to the Fox nation. For example:

"Hollow laid hollow sprayed I'm the hollow man
I get to my hollow point wit my hollow plan
Hollow bullets I pull it I'm about to live in vain
And then I drill em refill em make sure they feel the pain"

(BTW- Is this a shout-out to T.S. Eliot's The Hollow Men?)

While the controversy cost Ludacris his Pepsi deal, O'Reilly was to swallow his tongue for a second time two years later when the rapper was signed by Anheuser-Busch (NYSE:BUD).

I don't see Bill O'Reilly pulling in big endorsement contracts these days. So who's your daddy now, Bill?

Read the entire series

Pepsi Bottling Group (NYSE: PBG) issued its Q2 earnings numbers today, and the market apparently wasn't impressed. As of 2:45, the shares are off well over 4%.

The numbers weren't bad in some respects, but a couple areas weren't encouraging. Sales increased about 5%, and earnings per diluted share expanded by 12% to $0.78. That was more than enough to beat the analysts, who were looking for about $0.75 per share, according to Briefing.com. However, worldwide case volume declined 3%. Case volume is one of the most important metrics for a beverage company, so this is very disheartening. Also, cash from operations dropped to $89 million for the six-month period from a year-ago level of $158 million. There was no free cash flow, but management does expect positive free cash flow for the fiscal year.

Considering the bottler's forward guidance and dividend yield, the shares are somewhat cheap. But they are basically at a 52-week low in a bad market, so I wouldn't bother with them. When it comes to investing in the beverage sector, I prefer owning a PepsiCo (NYSE: PEP) or a Coca-Cola (NYSE: KO). In fact, I own the latter. Avoiding bottlers like Pepsi Bottling Group and Coca-Cola Enterprises (NYSE: CCE) makes sense for the long-term since the bottlers will always have greater exposure to capital-expenditure requirements.

Disclosure: I own Coke; positions can change at any time.

Talk about a tough time in the markets. Between the financial crisis and oil prices rising on an almost daily basis, with the Fed damned if it raises rates and damned if it doesn't, the floods in the Midwest are now threatening to make a trip to the supermarket much more expensive. Yes, break out the coupons and pray for sales, because, according to The Wall Street Journal [subscription], food prices are destined for one direction: higher. That's because a lot of farmland has been damaged, throwing the supply-demand dynamic into chaos.

What does this mean for investors? Look for potential pressure on the stocks of companies such as Coca-Cola (NYSE: KO), PepsiCo (NYSE: PEP), Kraft (NYSE: KFT), Kellogg (NYSE: K), General Mills (NYSE: GIS), and Hershey (NYSE: HSY). I happen to own Coke, and I've heard the news reports talking about how higher corn prices will affect Coke and Pepsi because they use corn syrup as an ingredient for their sodas. It's also been pointed out by others that PepsiCo owns Frito-Lay, and since that company manufacturers salty snacks such as Doritos and Tostitos (I love them both), corn prices will also have an impact on that division.

If you're a trader, be wary. We might be in for a rough ride this summer with not only the stocks I've mentioned here, but in a general sense. Since I own Coke, I've been acutely aware of the pullback experienced in that stock as the external pressures surround it. As I write this, the stock is trading at $54.27. The shares were over $65 during their wonderful stay at the 52-week-high suite. So, yes, buyers with short-term mentalities must be wary. However, long-term investors should look upon any pullbacks as potential opportunities for some of these food-selling companies. If you don't intend to trade, then adding to a Coke or Pepsi position might make sense.

Disclosure: I own Coke; positions can change at any time.

Common sense suggests if your portfolio doesn't contain a defensive play or two by now, you should add at least one, with the consumer products segment representing a good choice. And with the aforementioned in mind, PepsiCo is worth a review.

PepsiCo, Inc. (NYSE: PEP), or simply Pepsi as it is known in the Concrete Canyon, has all the ingredients for a reasonably safe consumer play: a leading primary brand, product diversification, established market positions, a wide geographical footprint, marketing savvy, and cost discipline.

Pepsi has a large snack business, but the major business model here is, of course, beverages, led by the namesake Pepsi cola, which vies with The Coca Cola Company (NYSE: KO) for cola supremacy, globally. Operating in about 200 countries, look for PEP's international market share to increase in 2008-2009. The company is also well-positioned in the juice and non-carbonated drink segments, which are also expected to perform well, moving forward.

Is there anything cooler than Kool-Aid? Kraft (NYSE: KFT) believes there is, my friends. In fact, Kraft thinks a healthier Kool-Aid is pretty darn hip!

According to this AP article, Kraft wants to position the Kool-Aid brand to health-conscious moms as a beverage that is okay for kids to consume. The food company will be adding vitamin E to one of the Kool-Aid varieties, and it has reformulated its sugar-free lineup to improve the taste. There's also a new Kool-Aid product on the market called Burstin' Waters that is supposed to be relatively healthy.

The company actually has been pretty good about trying to make its products not as junky. As the article states, Kraft introduced an initiative a few years back to create a set of nutritional guidelines that would aid the company in making its portfolio more in tune with the current zeitgeist; indeed, moms everywhere seem to be getting sick of putting sugary, fat-inducing foodstuffs into the stomachs of their kids. Of course, I'm sure kids still get away with eating junk at times (it's like an inalienable right of the youth); for the most part, though, consumer choices are shifting, and woe be the consumer-goods entity that does not respond. Just ask Coca-Cola (NYSE: KO) and PepsiCo (NYSE: PEP). Those two have been kicking it into high gear when it comes to alternatives to sugary carbonated sodas. Pepsi and Coke now offer all kinds of waters and enhanced beverages; in Pepsi's case, many of its salty-snack products are decidedly healthier. Coke purchased VitaminWater last year, and has been doing well with it. And with vitamins all the rage, Kraft would be smart to really promote the heck out of that vitamin-E addition.

So here's the deal: soda sales have been on the decline as consumers flock to better-tasting, ostensibly healthier, more "natural" beverages like Vitamin Water, which is owned by Coca Cola (NYSE: KO).

According to Beverage Digest, U.S. soda sales in major retail channels overall declined 3.5% in the first quarter, and convenience-store sales dropped fell 4.2%.

How does the soft drink industry plan to combat the trend? According to the Wall Street Journal(subscription required) , "To win back sales, several Coca-Cola and Pepsi bottlers are conducting pilot tests on a variety of bottle sizes they hope will appeal to consumers put off by the 20-ounce bottle or looking for a cheaper option to cushion the blow of high food and energy prices."

I'll be shocked -- shocked -- if this does anything to boost soda sales. Soda sales are declining for a very good reason: soda is bad for you and people now have great-tasting alternatives. At the risk of being alarmist, I think that soda sales -- at least in the United States -- are in a permanent state of decline. I think Coke knows that: they saw the future and bought Vitamin Water.

This post is part of our Battle of the Brands feature. Let us know which brand you prefer, and check out other Battle of the Brands posts.

Businesswise, it's no real competition between Subway and Quiznos. Subway, the number 1 sub sandwich chain, claims to have more than 29,000 locations in 86 countries, earning more than $11 billion in 2007. Quiznos, on the other hand, has more than 5,000 locations in 20 countries, earning $130 million in 2004, making it a distant number 2. In fact, Subway is the third largest fast-food chain globally after Yum! Brands (NYSE: YUM) (Taco Bell, Pizza Hut, KFC, etc.) with 34,000 locations and McDonald's (NYSE: MCD), with 31,000 locations.

Both Subway and Quiznos are privately owned, franchise fast-food chains. While Quiznos is a limited liability company controlled by chairman Rick Schaden and his family, Subway is a wholly owned subsidiary of Doctor's Associates, Inc., a company founded in 1965 by Fred De Luca and Dr. Peter Buck specifically to oversee the Subway chain of restaurants.

Subway menus vary by store. For instance, its restaurants in Muslim countries serve Halal menu, and Subway has kosher restaurants in New York, Los Angeles, Kansas City, and a suburb of Cleveland. All locations feature submarine sandwiches, ranging from four-inch "mini subs" to its three-foot giant subs. Popular sandwiches include Turkey Breast, Italian BMT, and the Subway Club. All of Quiznos' sandwiches are served toasted, and its best-sellers include the Classic Italian, the Mesquite Chicken with Bacon, the Prime Rib Cheesesteak, the Chicken Carbonara. Last fall Quzinos introduced flatbread "sammies."

I don't think I'll ever own a bottling group over a Coca-Cola (NYSE: KO) or a PepsiCo (NYSE: PEP). The cash-flow and margin scenarios with the sellers of concentrate is a much better long-term story. With that bias stated, let me check out Pepsi Bottling Group's (NYSE: PBG) first-quarter results, which were reported on Wednesday.

Net sales expanded by 7% to $2.7 billion. On a reported basis, earnings per share didn't budge whatsoever -- it was 12 cents this year, and it was 12 cents last year. On an adjusted basis, earnings were 13 cents -- hey, a penny is a penny, I guess. In fact, I see that Briefing.com is reporting that Pepsi Bottling Group beat the Street's outlook by a penny. Talk about symmetry. Operational cash flow was flat, coming in at $20 million, which was a million bucks less than the operational cash flow seen in the previous year's comparable quarter (by the way, I know that the pun "flat" has been used way too many times when talking about a beverage concern). As can be seen, the bottler lost the growth game this time around. It's only the first quarter, though, so we'll have to wait and see how the rest of the year shapes up. Right now, the company expects earnings of $2.30 to $2.38 on an adjusted basis.

Now, I don't hate Pepsi Bottling Group or anything like that (well, except for the fact that it distributes products that compete with my beloved Coca-Cola company, shares of which I own); it's a respectable company linked to a powerful beverage brand, and it has been pretty good on the dividend-increasing front (it recently upped its quarterly payout by over 20%). But I've always been prone to PepsiCo and Coke since they don't have to deal with the capital requirements for distribution; instead, they are the big marketers supporting the bottlers. If you want exposure to sugar water, I figure you may want to check out those two businesses first.

Disclosure: I own shares of Coca-Cola; positions can change at any time.

MOST NOTEWORTHY: American Capital, Realty Income and KKR Financial were today's noteworthy downgrades:

• Jefferies downgraded American Capital (NASDAQ: ACAS) to Underperform from Hold as they see a disproportionate risk profile in the company's current portfolio when compared to most peers.
  
• Banc of America cut Realty Income (NYSE: O) to Sell from Neutral as they believe the current valuation is not sustainable.
  
• Bear lowered KKR Financial (NYSE: KFN) to Peer Perform from Outperform following the company's announcement that it intends to sell 20M shares in a public offering.

OTHER DOWNGRADES:

• Goldman cut PepsiCo (NYSE: PEP) to Neutral from Buy.
  
• RBC Capital downgraded Avocent (NASDAQ: AVCT) to Sector Perform from Outperform.
  
• JP Morgan removed NICE Systems (NASDAQ: NICE) from its Focus List.

Kraft Foods, Inc. (NYSE: KFT) is in a bit of a pickle. As the following article makes clear, the company knows it has to raise prices. There's just no choice in the matter. Commodity input costs are on the rise, and something has to give. But the problem is, consumers not only have to pay more for Kraft foodstuffs, they have to ante up more of the green stuff for everything else too -- fuel for the car, heating oil for the home, you know the drill.

If you're a Kraft shareholder, should this concern you? What about if you own other consumer-oriented stocks based on the supermarket shelves that are feeling the inflationary pinch, companies such as General Mills, Inc. (NYSE: GIS) -- which reported earnings today -- or Kellogg Company (NYSE: K), or maybe even beverage businesses like The Coca-Cola Company (NYSE: KO) or PepsiCo, Inc. (NYSE: PEP)? Well, it should, of course. Inflation is no fun, and with the price of oil hitting new highs recently, a trend that seems very much intact, consumers will be strapped. In fact, Kraft is now trying to make up for lower volumes by raising the cost of its goods; this isn't ideal, perhaps, but Rick Searer, who is the president of Kraft North America, brings up an almost humorous point -- "consumers have to eat." I have yet to meet one that doesn't, come to think of it!

But I think the consumer companies are relatively sophisticated with their data-analysis protocols and are, perhaps, a bit more nimble in terms of deducing what shoppers want to buy for purposes of stocking their pantries. At least, I would hope they are -- we've been hearing about better data-mining techniques for years. Kraft obviously will promote a wait-and-see attitude in terms of the consumer and her reaction to the recession, but I don't think shareholders should be overly worried at this point. A lot of these defensive names have international exposure and stand to benefit from the falling dollar, for one thing. For another, we all have to eat! And since the defensive names generally have dividend yields, they tend to be safer bets during a recession; don't think they can't fall, though, because they can. One just hopes they don't fall as much as, say, your typical financial entity or a broad market index.

Disclosure: I own shares of Coca-Cola; positions can change at any time.