3 Reasons Why PepsiCo Stock is a Buy Consumer staple stocks like PepsiCo (NASDAQ:PEP) can be a great addition to any long-term portfolio, as they are known to hold up well in recessions a...

By Sean Sechler

entrepreneur daily

This story originally appeared on MarketBeat

Depositphotos.com contributor/Depositphotos.com via MarketBeat

Consumer staple stocks like PepsiCo (NASDAQ:PEP) can be a great addition to any long-term portfolio, as they are known to hold up well in recessions and provide consistent dividend increases over the years. While they might not be as exciting as some of the cutting-edge tech stocks that have been driving the market higher over the last few months, there's something to be said about a well-known brand name company that delivers steady gains and strong earnings on a steady basis.

When it comes to assessing the major beverages companies, it's really a two-horse race between PepsiCo and Coca-Cola. While both of these stocks have plenty to offer investors, there are several reasons why investors should consider going with PepsiCo stock at this time. The global snack and beverage giant owns some of the most iconic brand names in the world and is seeing a nice rebound in the areas of its business that were impacted by the pandemic. With over 49 consecutive years of dividend growth and a top-notch balance sheet, it's a very attractive option for investors interested in consumer staples.

Interested in learning more about why PepsiCo stock presents an enticing buying opportunity at this time? Let's explore 3 reasons why below.

Surprisingly Strong Q2 Earnings

First, PepsiCo stock is worth adding given its impressive Q2 earnings release that confirms the company is executing its business strategy at a high level. The report sent shares of the stock to a new all-time closing high and could be a catalyst for higher prices ahead. PepsiCo reported Q2 net sales of $19.22 billion, up 20.5% year-over-year along with EPS of $1.70, up 44% year-over-year. What also stood out from the report was the company's Q2 organic revenue growth of 12.8%. Organic growth is a clearer view of how a company is expanding through increasing output and enhancing sales internally, as it excludes the impacts of things like foreign currency, acquisitions, and more.

The company raised its full-year earnings guidance after the strong quarter, which certainly alludes to positive things to come from PepsiCo during the remainder of the year. PepsiCo now expects to deliver 6% organic revenue growth and 11% EPS growth for the year, which are both well above the company's initial estimates. There's also the fact that PepsiCo announced a $1 billion cost-cutting plan that will run through 2026 and boost the company's bottom line going forward. Finally, investors should be excited about how the company is moving its portfolio towards offering healthy products and PepsiCo's potential in emerging markets, which are both positives for the future of this company's earnings.

Smart Reopening Play

Keep in mind that PepsiCo sells a ton of its soft drinks in restaurants, bars, stadiums, and other public settings. This was an area of the company's business that was dramatically impacted by the pandemic, as many people stayed home to avoid putting their health at risk. Now, with more people getting vaccinated every day, the stock looks like a great reopening play. It's amazing to witness just how quickly people are heading back out into the world after a tumultuous year, which clearly played a big role in boosting PepsiCo's Q2 earnings numbers.

Look no further than PepsiCo's Q2 North America beverage segment's organic revenue growth of 21%, which was the highest out of all of the company's divisions, for confirmation that this company is going to benefit from people heading out into public settings to enjoy life again. The bottom line is that PepsiCo is a smart and conservative way to take advantage of the reopening, especially when compared to stocks in the airline and travel industry, which face a more uncertain road to recovery.

Low Volatility, High Peace of Mind

Finally, PepsiCo stock is a buy at this time because it is a defensive blue-chip name. Volatility can happen fast in the market, especially since the indices have been steadily grinding up for the past few weeks. It might be a good idea to start getting overweight low-volatility names such as PepsiCo, particularly if you think that the market might be overdue for a correction. With a beta value of 0.61, investors won't be rewarded with massive market outperformance during rallies, but they also won't be at risk of huge drawdowns should the market take a downturn.

Like many low-volatility blue-chip stocks out there, PepsiCo tends to focus on returning capital to shareholders, which is certainly attractive for long-term buyers. The company's dividend yield of 2.88% is certainly appealing and can give you peace of mind knowing that your investment is generating income regardless of market conditions.

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