I have (I think) narrowed my search for a new name in the portfolio down to two: PEP and SBUX.
Both companies fit my initial screening criteria of being simple, dominant, not overly risky, free cash flow generative companies. I am going to write a quick and very general bull thesis on each (without getting into financials yet), and then I want to hear your insight!
Pepsi – Mkt. Cap: 232B Yield: 2.5% P/E: ~30
Pepsi is a low risk investment with a stable and proven history of dividend growth and value creation. Even if you're a coke person, it is hard to deny that Pepsi's overall brand portfolio is dominant, diverse, and contains a ton of really powerful brand recognition (aside from Pepsi: Frito-lay, Gatorade, Quaker, Aquafina, etc.).
Management in my eyes has made a series of decisions to keep the company aimed towards the future, like selling Tropicana, a stuttering franchise, to pay down long-term debt and raise cash to finance movements into new industry trends.
Starbucks – Mkt. Cap: 87B Yield: 2.63% P/E: ~20
Starbucks has underperformed recently, leading to a steep drop off in price over the last 12 months. With the return of Howard Schultz, the company is committed to returning to its value-creating ways.
Most notably imo Starbucks has brand recognition and pricing power, which serves almost as a semi-moat to the business. It has a loyal customer base in a similar way Apple does. There are better phones out there, just like there may better places for coffee/snacks, but brand loyalty keeps their stores packed. This should serve to help mitigate the effects of high inflation (There absolutely are people who will not mind paying $0.50 extra to continue getting their favorite cup).
There are of course bear cases for each of these companies, I just chose to only include very general overview bull theses. Let me know what you all think, and pick one!
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