Hi Lou,
I have a good amount of PepsiCo stock, and I have watched it climb like crazy this year. I am thinking of cashing out, but not sure what to think of all the rumors with Nelson Peltz wanting the foods and beverages to split up. I have seen forecasts that suggest that the shares may go well over $100. My feeling on this is they might stock split like they did in the 90s. I just wanted to get your take in this hot stock what do you see for PepsiCo over a 6-12 month period?
Thanks,
Craig
Hey Craig,
Thanks for the assignment.
PepsiCo Inc. (PEP) is a worldwide beverage and snack food company which generated $66.85-billion (U.S.) in revenue last year. Sales are evenly balanced between the two divisions and PEP has a long history of paying and growing their dividend. The issue of splitting the operating units into separate companies is interesting but not material to your investment. If the advocacy of Mr. Peltz is voted on by the board you would be entitled to your pro-rata share of each. At that point you could decide to how best to proceed. In the meantime you have a very visible activist investor pushing management to deliver value.
In researching this stock some commentary surfaced on the company's relationship with Wal-Mart Stores Inc. (WMT) which is worth mentioning. WMT is a major client of PEP and as such has a lot of market power because of the revenue that they represent. The implication is that if WMT were to shut PEP out of its distribution channel that there would be trouble in River City. I see it more as a potential problem, not a real problem.
An investigation of the charts will better inform my thoughts on these shares.
The three-year chart tells the tale of a stock that has been very generous to investors. There were a couple of pauses along the advance but how can you complain about a stock that moved off of $57.50 in 2012? The big test of faith came as the stock declined from $85.00 in November of 2013 to a low near $75.00 in February of 2014. In the retreat PEP broke below the uptrend line and breached support along the 50- and 200-day moving averages. However that was as bad as it got. By March of 2014 the stock started a new advance which has taken the shares to their current trading range near $100.00.
The six-month chart highlights a couple of incidents where investors expressed their support for the stock by buying on the dip. The first was in late July when the shares broke below the 50-day moving average and bounced off $87.00 and the second was in October when it again breached the 50-day moving average and bounced off $90.00.
The charts are not providing any sell signals that would indicate that PEP is about to suffer a trend reversal. I would advise that you don't shoot this running horse.
Make it a profitable day and happy capitalism!
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