Consider Ditching Coca-Cola? Unwavering Investment Opportunities Make These Stocks Superior Choices.
There's no issue with Coca-Cola (KO 1.36%) as a corporation. It has an illustrious history and likely a prosperous future ahead. However, investors are well aware of Coca-Cola's appeal, leading to it appearing as a fully-valued stock, frequently.
It focuses on producing just one thing: beverages. If you're interested in Coca-Cola, you might want to consider its primary rival, PepsiCo (PEP 0.08%), or choose a different path and investigate Procter & Gamble (PG -0.47%). Here's why.
Coca-Cola is a one-trick pony
Coca-Cola's main strength lies in its dominant position as a beverage manufacturer. The company benefits from its distribution expertise, marketing prowess, and innovative capabilities that stem from its substantial size.
However, this strength can also be perceived as a weakness since Coca-Cola's business is anything but diverse. While it produces various kinds of beverages, beverages remain its primary focus.
In the end, beverages are just a small portion of the broader consumer staples sector. This is precisely why you may want to take a closer look at PepsiCo, one of Coca-Cola's main competitors in the beverage niche.
PepsiCo boasts a dominant position in salty snacks (Frito-Lay) and a significant packaged food business (Quaker Oats). This diversification can help stabilize financial performance over time, although it may limit potential returns. However, if there's an issue in the beverage business, it won't significantly impact PepsiCo, unlike Coca-Cola.
In addition, PepsiCo's price-to-earnings ratio (P/E) is slightly lower than its five-year average, while its dividend yield is marginally higher, offering a more appealing investment option for conservative investors.
Procter & Gamble plays a different game
There's another path investors can take, focusing on the broader consumer staples sector. This leads to considering prominent companies like Procter & Gamble.
P&G produces daily consumable goods that individuals frequently purchase. It holds leading positions in categories such as toothpaste, laundry detergent, toilet paper, paper towels, deodorant, and diapers. If you value diversification, P&G offers you this in great measure, as it tends to maintain dominant positions in the high-end product categories where it competes.
Similar to Coca-Cola and PepsiCo, P&G is an enormous corporation with formidable distribution, marketing, and innovation skills that would be difficult to replicate. It also maintains a globally diversified portfolio.
Although P&G's current P/E is comparable to Coca-Cola's from a valuation perspective, its yield is slightly lower. However, P&G's diversification across multiple product categories should not be overlooked. In fact, it could make an excellent companion to Coca-Cola, especially if you prefer not to invest in PepsiCo alone.
Investing half in Coca-Cola and half in P&G would provide more diversification than investing solely in PepsiCo, given that P&G spans a broader range of consumer staples categories. And you wouldn't be sacrificing quality in any way, as P&G is one of the finest-run consumer staples companies worldwide.
Coca-Cola is excellent, but explore your alternatives
Coca-Cola is without fault, and long-term investors are likely to see positive returns if they invest in it. But it is not the only viable option.
PepsiCo is another beverage titan worth considering, offering salty snacks and packaged foods, along with a more competitive valuation and higher yield.
Or, you could opt for a more diversified consumer staples giant like P&G, which could serve as a valuable complement to Coca-Cola since there's minimal business overlap.
Don't hesitate to consider alternative options beyond Coca-Cola. Some of these alternatives may be more appealing in the long run.
Given Coca-Cola's focused business model in beverages, some investors might look into diversifying their portfolio by exploring the finance aspect of other companies. For instance, they could consider investing in companies that offer a mix of beverages and other consumer goods.
Moreover, after analyzing the potential returns and risks, some investors might choose to invest in other companies within the consumer staples sector, such as those that specialize in food and personal care products, like Procter & Gamble, which offers a wider range of daily consumable goods.
