Continue to Stock Up on Market-Lagging Brands

Long-term investors still have a wide shopping list of great companies trading well off their highs. Many stocks outside of the big tech space make the grade. Especially companies that have strong brands.

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  • The past few years have shown that high inflation can weigh on a company’s profitability. But a great company can keep raising prices faster than they lose customers. In that situation, they’re set up well for long-term inflation, even if it slows back to lower levels.

    That also means that market-lagging brand stocks stand a chance to make above-average gains this year.

    One such company is Pepsi Co (PEP). The snack and beverage company is still more than 10 percent below its peak price from last year, but shares are trending higher. And Pepsi is offering reasonable guidance right now, leading to analyst upgrades.

    Meanwhile, Pepsi is reasonably priced for its basket of brands at 20 times forward earnings. Earnings have jumped higher by 151 percent in the past year, even as revenues have declined.

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  • Action to take: Pepsi shares are reasonably valued and trending higher. For investors looking for an overlooked brand name, shares fit the bill here. Plus, at current prices Pepsi pays a 3 percent dividend, with a long history of growth behind it.

    For traders, the April $180 calls, last trading for about $1.05, could see mid-double-digit returns or better in the months ahead from a continued rally higher in shares.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.

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