The Fed’s consecutive rate hikes to curb the stubbornly high inflation have triggered a broad market sell-off this year. Interest rate-sensitive and tech-heavy Nasdaq composite have lost 36.7% year-to-date.
Nevertheless, October’s CPI report showed signs of cooling inflationary pressures. Also, the Fed’s indication to increase rates at a slower pace going forward has uplifted investors’ optimism. The Fed is now likely to hike the interest rates by 50 basis points this week instead of the 75 basis points that were launched over the last four consecutive times.
In addition, experts are becoming increasingly confident that the economy might succeed in avoiding a recession.
We believe investors should consider buying fundamentally sound stock, PepsiCo, Inc. (PEP), despite the market uncertainties. PEP's solid dividend-paying record should help ensure a steady income stream. However, it could be wise to avoid Lucid Group, Inc. (LCID), considering its bleak fundamentals.
Stock to Buy:
PepsiCo, Inc. (PEP)
PEP is a global food and beverage giant with a broad portfolio of soft drinks. The company’s segments include Frito-Lay North America, Quaker Foods North America, and PepsiCo Beverages North America. Its product offerings also include branded dips, cheese-flavored snacks, tortillas, and dairy products.
On December 5, 2022, announced a new packaging goal intended to double down the scale of reusable packing models from 10% to 20% by 2030. This ambition is driven by disruptive innovation that aligns perfectly with the company’s sustainable packaging vision.
On August 2, 2022, PEP entered into a strategic agreement with premium Romanian spring water AQUA Carpatica under which the company will own a 20% equity stake in AQUA Carpatica. This partnership unfolds an opportunity to expand its offerings in Europe and other markets.
“With its excellent taste and premium positioning, AQUA Carpatica is a perfect complement to PepsiCo’s existing premium beverage portfolio,” said Silviu Popovici, CEO of PepsiCo Europe.
The company’s four-year average dividend yield is 2.79%, and its forward annual dividend of $4.60 translates to a 2.51% yield. Its dividend has grown at a 6.1% CAGR over the past three years and a 7.4% CAGR over the past five years. The company has increased its dividends for 50 consecutive years.
PEP’s net revenue increased 8.8% year-over-year to $21.97 billion for the third quarter that ended September 3, 2022. The company’s gross profit increased 8% year-over-year to $11.66 billion, while its non-GAAP operating profit rose 10.9% from the year-ago value to $3.59 billion.
In addition, its non-GAAP net income increased 10.1% year-over-year to $2.73 billion. Also, its non-GAAP EPS came in at $1.97, up 10.1% year-over-year.
The consensus EPS estimate of $1.64 for the fourth quarter ending December 31, 2022, represents a 7.2% improvement year-over-year. The consensus revenue estimate of $26.57 billion for the current quarter indicates a 5.2% increase from the same period last year. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 16.3% to close the last trading session at $183.10.
PEP’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Quality and a B for Growth, Stability, and Sentiment. Within the A-rated Beverages industry, it is ranked #8 out of 34 stocks. Click here to see the other ratings of PEP for Value and Momentum.
Stock to Avoid:
Lucid Group, Inc. (LCID)
LCID uses its equipment and factory to design, develop, manufacture and sell electric vehicles, EV powertrains, and battery systems in-house.
For the fiscal third quarter that ended September 30, 2022, LCID’s loss from operations widened 38.3% year-over-year to $687.52 million. Its total costs and expenses increased 163.6% year-over-year to $656.53 million.
The company’s net loss widened 1.1% year-over-year to $530.10 million, while its net loss per share narrowed 7% from the prior-year quarter to $0.40. Also, its adjusted EBITDA loss came in at $552.90 million, up 125.7% from the year-ago value.
Analysts expect the company’s EPS to remain negative in fiscal 2022 and is expected to decline 69.4% per annum over the next five years. It has failed to surpass the consensus EPS estimates in three of the trailing four quarters. The stock has slumped 77.2% year-to-date to close the last trading session at $8.68.
LCID’s weak fundamentals are reflected in its POWR Ratings. It has an overall F rating, equating to a Strong Sell in our proprietary rating system.
It has an F grade for Value, Stability, Sentiment, and Quality. Within the D-rated Auto & Vehicle Manufacturers industry, it is ranked #56 of 62 stocks. Click here to see the other ratings of LCID for Growth and Momentum.
PEP shares were trading at $182.69 per share on Monday afternoon, down $0.41 (-0.22%). Year-to-date, PEP has gained 7.98%, versus a -15.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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