2 High Quality Consumer Staples to Buy Right Now – PepsiCo (NYSE:PEP) and Philip Morris International (NYSE:PM)

0
55

PepsiCo (NYSE:PEP)

The everlasting fight between Coca Cola (NYSE: KO) and PepsiCo doesn’t seem to stop, but that’s something investors shouldn’t care much about. In fact, PepsiCo has a huge pipeline with way more products than just the classical soft drink called Pepsi. They own the famous and worldwide juice-brand Tropicana, Generate, Lays and several other soft drinks such as 7-Up, Mountain Dew and Schweppes.

Even more, PepsiCo has paid uninterrupted dividend for 25 years in a row and the total annual return since 2008 has been 7.8% which is very acceptable for a highly safe and stable investment such as PepsiCo.

Financials

As with most Dividend Aristocrats, PepsiCo’s financials are rock solid. The yield is close 3.8% and the payout ratio is 60% which is in line with what we normally aim for (less than 70%). The company’s current ratio, which tells us how much the company owes compared to how much they cash they have in hand, is solid at 1.30. As for market ratios, the current P/E is 19.13 but the forward P/E is highly attractive at 16.00. In terms of profitability, PepsiCo can boost with a 4.2% return on assets (ROA), 40.70% return on equity (ROE) and 16.40% return on invested capital (ROIC).

The mean consensus from the 24-analyst covering PepsiCo is that the company is worth $115 which provides a positive 18% spread towards the current price at $97. In so, it seems like this might be a perfect time to pick up this dividend aristocrat at a fair price.

Also Read: Dividend Aristocrats – Positioning Portfolios as Cash-Flow Vehicles

Philip Morris International (NYSE:PM)

Phillip Morris’s stock price took a nose dive after the latest earnings report. The fear is rooted in a general lack of trust in future demand for tobacco. While there might be something to it, this fear has been there for decades, yet still Philip Morris has returned almost double digit returns to its shareholders for many years. From 2013 to 2017, Philip Morris had a total annual return at 9.4 % while having a beta at 0.83 and yielding close to 4%.

Now, Philip Morris yields astonishing 5.28% and yet got a trackrecord few companies can brag about. The company, which is a result of a split from the mother company Altria (NYSE: MO), saw its revenue only decrease 2.6% during the last recession. In so, Philip Morris seems like a solid investment in a period where everyone is waiting for the next crash.

Financials

As a result of the recent dip, Philip Morris can offer highly attractive fundamentals. The current P/E is 16.60 but the forward P/E is very low at 14.10. The payout ratio is a bit high at 80%, but is still in line with what this company is used to operate with.

The mean consensus from the 18-analyst covering Philip Morris is that the fair value is $103 which means at the current price at $81, there is a capital appreciation potential close to 30%.

Include the dividend return and investors might look at a total return close to 35% within a year should the company revert to the mean. In so, it seems like Philip Morris is a great bargain right now.

Disclaimer: The author owns shares in PepsiCo

Free books, reports and subscriptions...