Yahoo Finance Questor: it may not be Tesla or Amazon but Pepsi is quietly delivering for shareholders
The recent history of corporate America has been dominated by a small group of charismatic, noisy “big men”: Jeff Bezos of Amazon, Tesla’s Elon Musk, Mark Zuckerberg of Facebook. But some of its stock market champions take a quieter approach to generating profits for their shareholders.
Questor doubts, for example, that many readers are familiar with the name of Pepsi’s chief executive, Ramon Laguarta. This is because Pepsi lacks a “big man culture – it is not the creation of one man, a Musk or a Bezos”, says Rob Burgeman of Brewin Dolphin, the wealth manager, which holds the stock of behalf of some of its clients.
“Laguarta is not someone who comes in and shakes everything up,” Burgeman adds. “Pepsi hasn’t suddenly got a new team at the top. For us, this illustrates good governance, good corporate culture, which has always been important at Pepsi.”
The company’s great rival is of course Coca-Cola, which is perhaps more firmly anchored in the public’s mind and can count Warren Buffett’s Berkshire Hathaway as a major shareholder. Buffett has said he will never sell a single share in Coca-Cola. But Burgeman says Pepsi offers investors the better opportunity.
“Right now the business case for Pepsi is stronger because it sells a greater variety of products,” he says. “Coca-Cola is pretty much beverages, whereas Pepsi offers a range of soft drinks, bottled waters and foods.” Its products include Gatorade, SodaStream and Quaker Oats and it can boast 23 brands that generate annual sales of more than $1bn (£700m).
“It’s a company you think you know but there is more to it,” Burgeman says. “And it is investing in growth. While its range of brands has not changed much in the past few years, it is always tweaking them so that they move along with the times. It is switching to low-sugar versions of its drinks, for example. Continuously investing money in your brands like this creates value. If you don’t do it you will start to go backwards.”
Pepsi’s efforts to grow also involve seeking new markets for its products. “Pepsi is more US-focused than Coca-Cola, so there is an opportunity to sell more beyond its home market,” he adds. “The company has proved itself to be a good allocator of capital, which allows it to make high returns on capital and generate lots of cash. In other words, it’s a good compounder.”
He acknowledges the threat from greater regulation as governments attempt to tackle obesity but says Pepsi has “dials it can twiddle” in response. “It could move towards baked versions of crisps, for example. Given enough time it could probably change its entire range to healthy products. But I can’t see snacks and drinks coming under the same kind of pressure as smoking,” he says.
“We like core blue-chip stocks and Pepsi is one of the first to go into the discretionary funds we run for our clients. There’s a lot to like about it.”
Questor says: buy
Ticker: Nasdaq: PEP
Share price at close: $155.89
Update: Axon
When we covered AMD last week after a discussion of the stock with Ben Rogoff, of Polar Capital, we lacked space to update readers on Axon, the maker of Tasers, which we had also tipped on the basis of Rogoff’s enthusiasm for the company.
He says: “Axon has announced some very good numbers – it’s had two big quarters. There has however been a lot of stock dilution from issuance of new shares as some employees take all of their salary in stock. We are holding on, although we have reduced our stake a little.”
The shares have gained 110pc since our tip in September last year.
Questor says: hold
Ticker: Nasdaq: AXON
Share price at close: $185.80
Update: Sainsbury’s
Shares in the grocery chain had been rising steadily since our tip in March until Monday, when they suddenly took off as speculation grew that takeover activity in the sector would not be limited to Morrisons, the subject of a fierce bidding war.
Sainsbury’s has yet to receive an actual offer, however, so this jump in the share price could prove short-lived. We intend to cover the stock and the chances of a takeover more fully in next Tuesday’s column.
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