Markets can turn on a dime. One piece of good news, whether from earnings reports, the Federal Reserve, or a change in government policy could turn around the current market fears. While there may be more downside first, that just gives investors a few extra weeks or even months to buy great companies at reasonable prices.
That’s especially true when buying shares of consumer goods companies. These stocks tend to trade at a premium, but can become a reasonable value in a bear market.
With earnings season underway this week, one early reporter is PepsiCo (PEP), which reported after the market close yesterday. The company is still relatively close to a 52-week high, and is down just 2 percent this year. The company could report how consumers are adjusting to inflation, but the company has also been good about raising prices to beat inflation over time.
Shares of the consumer brands giant are trading for about 25 times earnings, off a two-year peak of 30. With a 13 percent profit margin, sizeable for the processed foods industry, the company will likely continue to reward investors.
Action to take: Shares are worth accumulating here, as they’ll likely continue to hold up in this market, and even potentially break higher on a renewed market rally. Investors can also get a 2.7 percent dividend here, with more room for increased dividend payments in the years ahead.
For traders, the January $185 calls, last going for about $4.75, could deliver mid-double-digit gains on a rally in shares. Traders can likely buy on a down day and flip for low double-digit profits on the next rally day for the market.
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 of the companies mentioned in this article.