So, what does a company like Novo Nordisk have to offer investors? In short, a lot. Revenue has increased annually for over a decade while earnings per share dropped only in 2007. The company offers a dividend yield of 1.3%, nearly triple that of the industry average. Its stock offers investors quite the bargain, as its free cash flow yield is a solid 22%. Gross margins are 82.1%. Not bad for a company trying to right a wrong.
If trends continue in the way they are headed, the Center for Disease Control and Prevention expects one-in-three Americans to have diabetes by 2050. While I would never wish diabetes on anyone, imagine what a company like Novo Nordisk would do with that many more people available in its market. Often times, a company will appear very cheap because of a falling stock. This is not the case with Novo Nordisk.
Invest in Coca-Cola and PepsiCo?
Although The Coca-Cola Company (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP) may not be as cheap, or appear to have as great of an opportunity as Novo Nordisk, they should appeal to some investors. More than half of PepsiCo’s revenue, and more than 60% of Coca-Cola’s revenue, are derived from overseas sales. America’s numbers have dropped off, while foreign numbers continue to rise. Foreign markets are driven largely by China, Russia, Latin America, and Africa.
Also, these companies are starting to focus more on healthier products to market to their more health-conscious consumers. For instance, The Coca-Cola Company (NYSE:KO) now sells Dasani water, Powerade, Honest Tea, and Simply Orange. Both companies are trying to figure out a way to make a soft-drink beverage that tastes the same, while eliminating the calories.
The Foolish bottom line…
While I wouldn’t expect The Coca-Cola Company (NYSE:KO) or PepsiCo, Inc. (NYSE:PEP) to struggle, only one of these three companies has the highest FCF yield, the most consistent revenue and earnings- per-share increases, the highest gross margins, and the best-performing stock. Whichever company can increase sales in healthier products will likely make it a better “buy.”
Dividend yield is about the only thing that Coca-Cola and PepsiCo have bragging rights to. Maybe soft drinks, fast food, and sedentary lifestyles are what made Novo Nordisk the world’s most “sustainable company” on Business Magazine’s 2012 list. These products/lifestyles all lead to obesity, which often leads to diabetes, which should lead to greater investment opportunities for companies operating in the field of diabetics, such as Novo Nordisk.
The article One Soda a Day Keeps Your Health Away originally appeared on Fool.com.
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