As fears about a possible recession continue to swirl, investors are looking for places to put their money to protect it against a severe economic downturn. The consumer staples sector can be a source of protection at a time when there is virtually nowhere for investors to hide.
While stocks in this sector may go up less during bull markets, they tend to be more stable during bear markets. Coca-Cola Co (NYSE:KO) and PepsiCo, Inc. (NASDAQ:PEP) are two consumer staples stocks that might be worth considering. In fact, the former is up more than 8% year to date, while the latter has gained 6%, demonstrating both companies’ resilience when the equity market is crumbling.
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Coca-Cola And Pepsi: The Highlights
One of the best things about these two soda-pop companies is their dividends, with PepsiCo's yield at 2.47% and Coca-Cola's at an even more attractive 2.8%. These attractive dividend yields mean both companies might be worth holding even after the danger of recession is past.
Warren Buffett certainly thinks so, at least when it comes to Coca-Cola. He has owned shares of the beverage maker for years, and it currently makes up 7.7% of Berkshire Hathaway's portfolio, a sizable chunk of a massive portfolio.
Coca-Cola and PepsiCo are both quite profitable, albeit with relatively small net margins due to the many expenses involved in manufacturing and bringing consumer products to market. Both companies are also extremely stable and growing steadily.
Digging Into The Fundamentals
A review of Coca-Cola's and PepsiCo's fundamentals shows just how strong both of these food and beverage bellwethers are. Coca-Cola is smaller and more profitable, recording $9 billion in net income on $37.3 billion in 2019 before the pandemic and $9.8 billion in net income on $38.7 billion in sales in 2021.
The company took a hit early in the pandemic due to the large number of shuttered restaurants that had been selling its beverages, but it recovered quickly as the economy reopened.
However, PepsiCo offers a wider array of diversification within the food and beverage industry and is significantly larger than Coca-Cola.
Additionally, PepsiCo grew steadily even during the pandemic as its sales soared from $67.2 billion in 2019 to $70.4 billion in 2020 and $79.5 billion in 2021. Meanwhile, its net income jumped from $7.4 billion in 2019 to $7.7 billion in 2021.
Coca-Cola's trailing P/E has been fairly stable at around 28 times since December 2020, when it came back down to earth after a brief period above 100 times. On the other hand, PepsiCo's trailing P/E is more volatile but still resilient, falling from about 31 times earlier this year to around 26 times.
Why Both Can Be Good For Diversification
Investors who are weighing whether to buy just one of these two beverage stocks due to diversification concerns might be interested in knowing the differences between Coca-Cola and PepsiCo. These two companies both own a wide array of consumer brands between them, but they have taken different strategies in choosing which brands to acquire or launch.
Coca-Cola is primarily a beverage maker that owns numerous beverage brands, while PepsiCo owns snack brands in addition to its flagship Pepsi brand and other beverage names. As a result, owning both names does give investors exposure to snacks in addition to numerous beverage brands.
Benefits Now And In The Long Term
At the end of the day, Coca-Cola might be marginally better than PepsiCo based on its slightly higher dividend yield and slightly better fundamentals. However, both of these companies are stalwart, profitable names that won't be going anywhere anytime soon.
Thus, investors might want to consider adding one or both to their portfolios as hedges against inflation and recession in the near term and as dividend plays in the long term. Coca-Cola and PepsiCo are both dividend kings, meaning they have both increased their dividends every year for at least the last 50 years.
