Reuben Gregg Brewer, The Motley Fool
5 min read
In This Article:
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Consumer staples companies are often considered safe-haven investments in times of market uncertainty.
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PepsiCo's stock price has plunged as it faces a weak business outlook, but that could be a buying opportunity.
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Hershey has suffered from a drastic increase in cocoa prices, but it is still investing for long-term growth.
Consumer staples companies sell things that people tend to buy regardless of the economic environment and stock market dynamics. They are looked at as safe-haven investments for that reason.
But two of the industry's best-known companies are struggling today and, if you think long term, that is likely to be a buying opportunity. Here's why these two monster food stocks are buy-and-hold investments for the next decade.
PepsiCo (NASDAQ: PEP) is named after its famous soda brand. Beverages are a very important business, but the company is the No. 2 player in the beverage industry. It is the No. 1 company in salty snacks, however, with its Frito-Lay brand. It also has a material packaged food business in Quaker Oats.
All in, it is one of the most diversified consumer staples food companies you can buy, with strong innovation, distribution, and marketing skills.
And still the company's business, like all others, goes through good times and bad. Right now, PepsiCo is facing bad times, with top-line growth cooling after a spurt of inflation-driven growth coming out of the coronavirus pandemic. Frito-Lay is also facing some headwinds as snacking trends appear to be changing.
This isn't the first time PepsiCo has dealt with adversity over the last 53 years. That's how long it has increased its dividend, proving that this Dividend King knows how to survive. You have to have a good business model that gets executed well in both good times and bad to achieve a dividend record like that.
The key today is that PepsiCo isn't sitting around idle, hoping for things to change. It is focused on cutting costs, improving efficiencies, and adjusting its mix to better appeal to consumers. That last point includes everything from changing the size of its packages to buying entire companies, like Siete, which makes Mexican-American fare, and Poppi, which makes probiotic beverages. Siete and Poppi are on-trend brands that will benefit from being plugged into PepsiCo's powerful distribution system.
It may take a few years for PepsiCo to work through to better days. But with a historically high 4.4% dividend yield, investors are being paid very well to wait it out.
