Pepsico Inc. benefiting from an activist investor spurring the board.

Nov 24th, 2014 – Comment

The charts are not providing any sell signals that would indicate that PEP is about to suffer a trend reversal.


About the Author

Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


Read the author's full profile.


Further Research

Read more about Soft Drinks and Snack Foods.


I had intended to complete the assignment from George covering the uranium stocks and ETF’s he forwarded on November 12, 2014. However the last two entities have proven problematic. Natan Resources Ltd. (NRL TSXV) goes weeks without trading and last settled for $0.01. In addition it is not carried by StockCharts.com in their library. Similarly the iShares Global Nuclear Energy (NUCL Nasdaq) aren’t showing up in the library either.

This will conclude the examination of the previously listed uranium mining stocks and ETF’s. What is evident from the analysis is that the sector is very much news driven with big pops on hopes of increased demand and rising prices. What has also been identified is that the constituent members of the portfolio all tended to be trading stocks with the tendency to pop and drop.

Lets get on to another stock.

 

PEP Logo

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 90′s. 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 NYSE) is a worldwide beverage and snack food company which generated $66.85 billion 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 NYSE) 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 potential problem not a real problem. Yes dealing with WMT is challenging for any supplier but PEP understands the power relationship and has managed to keep things civilized and profitable with the Beast from Bentonville.

An investigation of the charts will better inform my thoughts on these shares.

 

PEP

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.

 

 

 

 

 

PEP2

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!

Content © Relentless Economics - Charts courtesy Stockcharts.com - Employees Entrance - Optimization Media