Shares of Pepsi have fallen 7% this year, a result that reflects sentiment far more than fundamentals. The S&P 500 index’s rally following 2022’s bear market saw investors reject anything remotely defensive, including consumer-staples stocks. Higher bond yields also made the sector’s dividends less attractive, while the success of Novo Nordisk‘s Ozempic and other GLP-1 weight-loss drugs had markets fearing that no one would ever want to snack again, a problem for Pepsi, which owns Frito-Lay.
But as 2023 comes to an end, sentiment might be about to turn. Bond yields have fallen from their peaks, while concerns about economic growth are slowly returning, something that could make staples a must-own once again. The panic over weight-loss drugs also seems to have subsided. What’s more, Pepsi’s growth appears ready to accelerate as investments made over the past five years start to pay off.
“Pepsi is the most durable business in our coverage,” writes Jefferies analyst Kaumil Gajrawala. “We expect PEP shares to outperform in risk-off environments, and long term by compounding earnings ahead of peers.“