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There are times on Wall Street when you just have to throw caution to the wind. Sure, Mr. Market may be downbeat on a stock, but that doesn't mean it is a bad investment.
In fact, the contrarian move of buying when other investors are selling can lead you to strong long-term results, particularly if you focus on owning historically well-run companies. Which is why you won't want to wait until some tomorrow to start buying PepsiCo (NASDAQ: PEP) stock. Here are three reasons today is the day to buy.
1. The stock is in the dumps
Shares of consumer staples giant PepsiCo have lost nearly a quarter of their value since early 2023. That's a pretty sizable drawdown for this company. But every time it has lost this much value, it has eventually bounced back to reach new highs.
There's no guarantee that will happen again, of course, but the business hasn't fundamentally changed in any way since 2023. So there's no reason to believe it has suddenly become a bad company.
However, there's an interesting aspect to this price drop. It has pushed the dividend yield up to around 3.6%, near the highest levels in the company's history. Dividend yield can be used as a rough gauge of valuation, and right now PepsiCo's yield is screaming that the stock is historically cheap. To back that up, the company's price-to-sales and price-to-earnings ratios, more traditional valuation metrics, are both below their five-year averages.
2. PepsiCo knows how to get back up after getting knocked down
As noted above, nothing material has changed about PepsiCo as a company since early 2023. In fact, the food maker has basically been running the same successful playbook for decades, which has translated into a very long history of success.
That shows up, once again, with the dividend. PepsiCo is a Dividend King, one of a rarefied group of companies that have increased their dividends year in and year out for 50 consecutive years or longer. You don't build a record like that by accident; it requires high levels of execution in both good markets and bad ones.
Think about the last 25 years, let alone the last 50. There was the dot-com bubble, the Great Recession, and the coronavirus pandemic, to highlight some of the worst periods. And PepsiCo did just fine in each case, growing its business and rewarding investors with larger dividends each year.
In fact, despite the current business headwinds, management continues to invest for the future. It just bought Siete Foods, a diversified Mexican-American food company, and has agreed to buy the 50% of the Middle Eastern food specialist Sabra that it didn't already own.