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Sunday, April 15, 2007

Coke vs. Pepsi: Better stock pick?

In times of economic turbulence, food staples and soft drinks are always a safe bet. You can always bet that when times are tough, people still drink Coke and eat Fritos. Hmmm...I'm hungry. Ok, back to business. If you had to pick a winning stock in a time of economic hardship, which would you choose? I'd have to go with Coke (KO). After all, Warren Buffet just bought up a bunch of shares in Coke about a year ago. Let's analyze the situation. Coke and Pepsi are on the rise. Both are safe in times of recession. Both are showing moderate growth at this point. Coke is priced around $49 with a P/E of about 23. It's PEG is about 2.5. Coke also pays a 2.7% dividend. Pepsi (PEP) trades at $64 a share with a P/E of 19, however. Pepsi pays a 1.9% dividend. Which one is better? It's hard to tell just with these numbers. You need to look at longer term growth because if we hit a slowdown in the economy, you are looking at years, not months, of slow times. These stocks need to be held for the long haul. You won't get rich quick owning Coke or Pepsi. In terms of long term growth, Coke has the edge. Coke, since the 1980's, has extended itself overseas while Pepsi decided to play hardball at home with the potato chip market. Last year, Coke got 66% of its sales from overseas compared with Pepsi's 37%. Plus, not to mention, they made a slam dunk with Coke Zero, the no sugar alternative to regular Coke. Coke also bought Fuze, a maker of juices and teas infused with vitamins. It's quite popular. Even though, Coke has a higher P/E right now, I still think it is a buy in the future. That's not saying that Pepsi is no good. Pepsi is also a decent choice; however, if I had to pick just one, I'd pick Coke. Besides, how could you go against a Warren Buffet pick?!

Disclaimer: Please consult a professional financial advisor before acting on any recommendations.

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